Lord Bradshaw: My Lords, will the Minister confirm that in the United Kingdom the cost of moving utility services is huge because the utilities companies bring forward all their maintenance requirements and load them on to the schemes? In this country, 90 per cent of that cost must be met by the light-rail scheme, whereas in Europe as little as 30 per cent is loaded on to light-rail schemes. That is the reason that they are so uneconomical.

Lord Tomlinson: My Lords, I thank my noble friend for acknowledging the role that the Council of Europe plays in this regard. As a member of the Legal Affairs Committee of the Council of Europe on your Lordships' behalf, perhaps I may say that we are deeply disturbed at the failure of EUROCONTROL to give any indication in response to inquiries about the patterns of flights that it has been asked to account for. It is all very well the member states giving their responses to the Secretary General, but can my noble friend assure us that pressure will be brought on EUROCONTROL? At the moment it seems to be controlling itself and not to be subject to any sort of international direction.

Baroness Scott of Needham Market: My Lords, does the Minister accept that the fact that only 1,800 surveyors have come forward from an estimated requirement of 7,300 surveyors is causing great concern? Does she agree that the small number of people coming forward and the doubts about their ability to carry out effective and accurate surveys is leading house buyers to be concerned about their future prospects and the redress available to them if their survey is discovered to be faulty?

Baroness Hanham: My Lords, how many of these 1,800 inspectors are already chartered surveyors? Chartered surveyors are presumably already meant to know how to survey houses, so why are they being put through a lower-grade exercise to train them to do something they already do? How many people have come from the outside of the profession of chartered surveyors to put themselves forward to be home inspectors, and how many are chartered surveyors—who should not, by all accounts, be being retrained?

Baroness Anelay of St Johns: My noble friend Lord Northesk has asked me to move his Amendment No. 221. In moving that amendment I shall speak to the other amendments in this very large group. I agreed to such an aggressive grouping in order to be able to have a wide debate on the powers of the commissioner. However, especially after what the Chief Whip has just told us, I am conscious of the significant amount of business ahead of this Chamber. Members involved in this Committee stage went on until half past midnight last week—I have no intention of forcing other noble Lords to be in the same position today.
	This group of amendments directs our attention to the vital importance of independent oversight of the ID cards scheme. It is important to examine the role and powers of the national identity scheme commissioner and to examine his role in the preparation of his reports on carrying out his functions. We do not accept that the creation of the register as set out in the Bill has so far been justified by the Government, but we are pleased that a national identity scheme commissioner will be appointed under Clause 24. In the draft Bill, the commissioner was restricted to a single power, reviewing the use of powers of disclosure without consent. That role was broadened slightly when the earlier Bill was published, and it has been extended again in the new Bill—but it is still far short of an independent, robust review of the scheme's operation that we should like to see. The commissioner is powerless in relation to the areas that he has to review and has no power to change anything that he finds unsatisfactory. Amendment No. 221 adds a requirement to keep under review the accuracy and integrity of the information held on the register to the functions of the national identity scheme commissioner. As our debates in Committee have already indicated, these are especially important aspects of the scheme, and I hope the Government will feel sympathetic to this uncontroversial proposal.
	I tabled Amendment No. 223 in response to the recommendation of the Select Committee on the Constitution in paragraph 7 of its third report that the powers of the commissioner should be extended to include such matters as the investigation of complaints from individuals about the way the Secretary of State, or other authority responsible for maintaining the register, has handled their affairs. The Bill simply provides for the commissioner to supervise and oversee the operation of the scheme, to hold office in accordance with the terms of his appointment, and to make an annual report to the Secretary of State.
	I appreciate the fact that Clause 25 of the current Bill strengthens the duty of the Secretary of State in two respects with regard to reporting to Parliament; however, we believe that further improvements need to be made. Amendment No. 223 covers the first of those improvements: the ability of the commissioner to investigate complaints and data corrections from individuals whose details are on the register. Clause 24(3) sets out matters that will not be part of the commissioner's functions. Why are those exceptions not included within the commissioner's remit?
	Amendment No. 224 would permit the commissioner to take a general oversight of policy matters, but would expressly exclude from that thematic oversight the matters set out in its proposed paragraphs (a) to (e) inclusive. I have given the Government a reasonable choice here: if they say they cannot move as far as accepting my proposal in Amendment No. 223, I hope they would welcome that in No. 224. It is the appropriate function for the commissioner. It does not detract from the powers the Secretary of State wishes to give himself in relation to his official functions.
	Amendment No. 225 removes paragraphs (a) to (c) from Clause 24(3). It has a similar objective to part of Amendment No. 224, which is to challenge the limitations that the Government have imposed on the commissioner's functions. Amendment No. 226 would add the chief executive of the Serious Organised Crime Agency to paragraph (d), in addition to the Director-General of the Security Service, the Chief of the Secret Intelligence Service and the Director of the Government Communications Headquarters. Surely the Government should employ all the heads of the relevant police and security services in the detection and prevention of serious crime. Why has this particular office been excluded from paragraph (d)?
	Amendment No. 227 provides for what we believe to be a sensible liaison between the commissioner for the national identity scheme and the Information Commissioner. The effect of the amendment is that before the national identity scheme commissioner undertook a review that included the policy towards the provision of information to the various security directors-general, he could liaise with the Information Commissioner with a view to transferring responsibility for that review to the relevant person—that is, the Information Commissioner—or liaise with him or her with regard to the processing of personal data.
	The amendment returns to the objective of ensuring sensible thematic oversight. It does not seek to interfere with the courts, nor with the discretion of the Secretary of State. It seeks to provide sensible and independent oversight of a growing area of interference in the life of the individual.
	Under Clause 25 the commissioner must make reports to the Secretary of State, who must lay a copy of that report before Parliament. However, the Secretary of State may edit or delete information for a wide variety of reasons. He can remove information if it appears to him that publication would be prejudicial to national security, the prevention or detection of crime, or the continued discharge of the functions of any public authority. The fact that the Home Office and the UK Passport Service are public authorities means that any critical material in the commissioner's report may be excluded as it would undermine them, thus undermining the very purpose of the commissioner. The Secretary of State may also exclude any information that appears to him to be contrary to the public interest.
	We believe that it is important that the commissioner's role should be broader, and his powers stronger. In particular, he should report to Parliament directly, as the Information Commissioner already does. It is impossible to carry out a truly independent review if reports to Parliament are filtered by the Secretary of State. Ideally the commissioner's role should extend to overseeing the operation of the registration and identification scheme as a whole. If it is envisaged that the Secretary of State will make repeated extensions to his powers through the passing of regulations, it is surely important that the commissioner is able to report on the use of such powers. That will allow parliamentarians to assess whether further extensions are justified.
	My remaining amendments in this group cover two broad issues. Amendments Nos. 231 to 236 look at the balance of power between the Executive and Parliament. The Select Committee on the Constitution recommended at paragraph seven of its third report that the commissioner should be able to report directly to Parliament, and we agree. Despite the fact that the commissioner is appointed by the Secretary of State, he is carrying out a public function for which he should account directly to Parliament. The Government's view is that the commissioner is there to provide the Secretary of State with reassurance that the ID cards scheme is operating correctly. But that fails to take account of the need for the public at large to be assured that the register is being maintained in accordance with the law and the wishes of Parliament, not merely that the scheme accords with what the government of the day want. The proposals in the Bill mark a whole new departure in the relationship between the state and the individual, and Parliament has a vital role to play in a system of accountability for the oversight of the scheme.
	Amendments Nos. 231 to 236 broaden the commissioner's power by ensuring that reporting takes place directly to Parliament. Amendment No. 232 ensures that the commissioner reports to Parliament as well as to the Secretary of State. Amendment No. 234 goes much further. It includes a general extension that will allow the commissioner to report on any matter he or she feels is appropriate. The information sharing powers in the Bill in particular are potentially without limit. The person charged with independent scrutiny should be given the appropriate remit. Amendment No. 234 removes the power of the Secretary of State to censor the report. Amendment No. 235 is merely consequential on Amendment No. 232.
	Finally, in this canter through, Amendments Nos. 237 to 242 refer to the power to edit the report. They all have the effect of asking how the report of the commissioner can be meaningful to the public if parts of it are censored by the Secretary of State. If we are not told whether any censorship has taken place, how can we truly judge the value of that report? The amendments ask the Government to justify the provisions of Clause 25(4). Amendment No. 241 is simply consequential on Amendment No. 237. I beg to move.

Lord Crickhowell: I added my name to the majority of the amendments which have been so admirably spoken to by my noble friend. I need not go over all the ground which she has covered in detail and with great clarity. However, she made one point that is worth repeating which I believe concerned a response of the Minister to a Select Committee report that the primary job of the commissioner was to advise the Secretary of State. I do not believe that is the primary job; I think the primary job is to report to Parliament and to protect the citizen. It is extremely important that the role of the commissioner as the protector of the citizen and as the rapporteur to Parliament should be included in the Bill, and that the powers given to the commissioner should be strong and effective. We have already heard that the information commissioner reports directly to Parliament and that seems to me an admirable precedent.
	During our long debates we have discovered that the Government are taking remarkably wide and very considerable powers to amend the legislation by order. Against that background it is particularly important that we should have a commissioner who has absolute freedom in the widest possible sense to do his job and to present whatever information he feels is appropriate to Parliament.
	I have no hesitation in saying that this is one of the most important sets of amendments in the whole Bill and that I support my noble friend's amendments. I suspect that we will not resolve the matter in this sixth day in Committee. I suspect too that we will be told, "Ah, Clause 25 as it now stands does after all ensure that after the Secretary of State has a look at it he must lay reports before Parliament". But that is the wrong way around. This is one of the occasions when Parliament should insist on its rights and its position as the supreme protector of these kinds of matters and should insist on the kind of amendments that my noble friend has proposed.

Lord Lucas: I have a couple of amendments in this group, and I support everything that my noble friend Lord Crickhowell has just said. It is, to my mind, one of the crucial parts of the Bill. We should strengthen the commissioner to the point where he can rank alongside the Information Commissioner, which provides a good model. He and the Data Protection Registrar, who preceded him, have done extremely well in protecting the public interest in some crucial areas. Although at the moment we are some way away from having ID cards, it is clear that this area will become critical, because we are moving towards a surveillance society. As the Minister has said, we are doing that because that is what we want to do. We are moving in small, well-reasoned steps, each of them taken because it offers us a public advantage. These technologies will make it much easier for us to catch criminals, to suppress crime and to order society. That is what we want to do, and from the current indications—looking at the relative penetration of cameras and similar devices in this country versus other countries in Europe—it is clear that we are well ahead of Europe in accepting and in wanting those technological security measures. Perhaps because we have so few policemen on the beat we at least want someone looking over us.
	None the less, it is the way that we are going, and the technological capability is increasing apace. Some of that is directly tied in to the Bill. Facial recognition, with high quality cameras, is now possible at quite some distance. When you tie that in to everyone having their facial biometrics on the ID register, you suddenly have a capability of running a camera across a crowd and knowing exactly who everyone in it is. That will be extremely useful when it comes to public disturbances or watching people running away from a crime. We are going to allow that when the time comes.
	When everyone's fingerprints are on file, it will become much easier to catch up with people, for example, at boot fairs. You merely get them to sell you something, pop it in a plastic bag and you have their identity, immediately registrable against the national identity register. It is not just the things that flow immediately from the Bill that will be there. Because we all have the unique number it will key in to all sorts of other private information systems. Radio frequency identification tags are beginning to come in, and Asda has had a serious experiment with them. It is clear that the technology is becoming extremely useable. I expect in a few years' time to march into my local branch of Marks and Spencer and be told by the shop assistant that he really thinks I should change my underpants because I bought them from him three years ago. They will have an RFID tag, and the information system pulls up exactly what I have bought in that store over the past years. That sort of technology is so useful for business that it is bound to happen.
	Once you have those tags they will become readable in all sorts of ways. There will not any more be the traditional detective story problem where you have to go out and visit 2,000 shops to find where a garment came from; you will just read the tag and you will know immediately where it came from. Our whole lives and our buying history—to the extent that they are not pinned down already through telephone and number plate recognition and other technology that we are now used to—will be available through this one unique number. We are going to agree to it, and anyway it is the way that society is going to be.
	So we had better jolly well give ourselves some decent protections. Since there is a model in our data protection legislation we can follow, we should move to that now. I know that 15 or 20 years down the road we may want something more, but now we should move to what we know we are likely to want. My amendments, supplementary to those tabled by my noble friends, are intended to achieve that.

Lord Phillips of Sudbury: I have tabled Amendment No. 222 in this group and support Amendments Nos. 231 and 234. Amendment No. 222 is an adjunct to Clause 24(2) which describes the functions of the commissioner in keeping various matters under review. My amendment would add a paragraph that would state:
	"In discharging those functions the Commissioner shall have particular regard to the effectiveness of the protection of confidentiality and use of individuals' information on the register under the provisions of this Act".
	Concern and anxiety about privacy and the confidentiality of citizens' private information is now commonplace in some quarters. I view my amendment as the twin of Amendment No. 221 and others in the group. It would protect confidentiality more than the Bill as currently drafted does. Clause 1, the Bill's keystone, describes the register as facilitating,
	"the provision of a secure and reliable method",
	for ascertaining and verifying registrable facts. That is more about the ascertaining of facts. My amendment is about keeping facts confidential when they should be confidential.
	I strongly support the comments of the noble Baroness, Lady Anelay, regarding the group as a whole, particularly those amendments that deal with the relationship of the commissioner with Parliament. For all the reasons that she and other noble Lords have mentioned, it is very important that the principle relationship and answerability should be between the commissioner and Parliament, not between the commissioner and the Secretary of State, or anyone else. Because they would more closely parallel the arrangements for other commissioners, such as the Information Commissioner, I hope the Government will see the need for these amendments and take account of the advice that has been given by the committees that have examined this matter.

Lord Hylton: I am convinced that we need very strong safeguards, both for individuals' privacy, as described in the amendment tabled by the noble Lord, Lord Lucas, and for confidentiality, mentioned in the amendment tabled by the noble Lord, Lord Phillips of Sudbury. This Bill has been creeping up on us for a number of years and that may explain some of the apathy with which it presently seems to be considered by large swathes of public opinion. But when people realise what the Bill really contains, concern will be multiplied and I urge the Minister to accept the need for safeguards and to tell us today that they will be effective.

Baroness Scotland of Asthal: It is already crystal clear. The whole way in which the commissioner will work is going to incorporate that. The amendment of the noble Baroness, Lady Anelay of St Johns, takes out one part of it but, if you look at the structure which we have in the Bill, all of those issues are ones on which the commissioner can report and have scrutiny. This is therefore an unnecessary complication, but we absolutely agree with noble Lords when they say this is an important issue.
	Amendment No. 223 seeks to add to the powers of the national identity scheme commissioner by allocating him a formal role in the investigation of individual complaints and in dealing with data corrections. It would be wrong to give the commissioner a formal role in the investigation of complaints. Complaints handling will be a routine function that the new agency will need to fulfil.
	The United Kingdom Passport Service—which will form the basis of the new agency to be established to issue identity cards and passports—already has a tried and tested system for dealing with complaints, whether it is about the level of service, including delays, or the outcome of an application. It also has a published set of service standards.
	There is an existing four-stage complaints procedure which includes a review by the local customer service manager, followed, if not satisfied, by a review by the headquarters' customer service department. If not satisfied, a complainant can write through their MP to the Passport Service chief executive or a Home Office Minister and then, as I have already said, to the Parliamentary Commissioner for Administration—the ombudsman.
	These avenues will all remain open to the public once identity cards are introduced. In addition, there will be nothing to stop members of the public alerting the commissioner to complaints they have had about the agency's conduct. However, where they have not already done so, we would expect the commissioner to direct many of these complaints back to the agency's own internal complaints handling process.
	Having said that, we would expect the commissioner to review the way the agency manages complaints and, in appropriate cases, he or she may decide to make further inquiries into any specific complaint. What is not proposed is that the commissioner should be responsible for dealing with every single complaint, however trivial.
	The commissioner should scrutinise the agency's own complaints handling processes and report on these as he or she sees fit, including in an annual report. Staff of the agency will be under a duty to co-operate with the commissioner and provide information to him or her by virtue of Clause 24(4). If the commissioner is not satisfied with the handling of complaints in general, or a complaint in particular, he can of course raise it with the Secretary of State and refer to it in his reports under Clause 25, all of which will be laid before Parliament.
	Amendment No. 223 also seeks to give the commissioner a role in data correction in individual cases. Arrangements for ensuring the accuracy of the data on the register will be one of the issues of concern to the commissioner in carrying out his functions under Clause 24(2)(a). However, we do not think it would be appropriate to give him a duty to investigate individual cases. As I hope I have made clear, the operation of the register will need to comply with the Data Protection Act. The duties of the Secretary of State as a data controller—including a duty to ensure accuracy—the rights of the individual as a data subject and the powers of the information commissioner will all apply to the national identity register as they do to other databases. All the complementary things that have been said about the information commissioner in discharging that role will remain in situ.
	Individuals will be able to establish details of their own entry on the register. We hope to make this possible by means of a secure online check. In any event, they will be able to make a subject access request under the Data Protection Act. If individuals are concerned that there is an error on the register, they can request that the information is removed or corrected. In the normal course of events, the problem should be solved without the need for reliance on formal legal rights. But ultimately, an unreasonable failure to rectify information can be the subject of a formal application for rectification made to the court under Section 14 of the Data Protection Act.
	Amendment No. 224 seeks to add to the remit of the national identity scheme commissioner both "general policy matters" and areas that are currently excluded from his remit if any of those areas raises a matter "of substantial public interest".
	Amendment No. 225 would add to the commissioner's remit some of the functions that we have excluded from his remit; namely, the exercise of powers which are exercisable by statutory instrument—or by statutory rule in Northern Ireland—appeals against civil penalties, and the operation of the Act to subordinate legislation.
	Amendment No. 227, read in conjunction with Amendment No. 224, would, first, allow the commissioner, when undertaking a review of provisions of information to the intelligence agencies to liaise with the intelligence services commissioner with a view to referring responsibility for that review to him; and, secondly, allow him to liaise with the information commissioner in relation to the processing of personal data.
	It is important that the powers in the Bill are properly scrutinised, but I also think it is important that we use the resources available to us effectively. The reason for excluding the matters listed in subsection (3)(a) to (c) from the role of the commissioner is that those parts of the Bill are already subject to independent scrutiny either by Parliament or by the judiciary.
	Taking each in turn, they are: the exercise of the powers by means of statutory instrument—or statutory rule in Northern Ireland—which would be subject to parliamentary oversight; appeals against civil penalties which will be a matter for the civil courts; and criminal offences which are a matter for the criminal courts.
	Given that the matters which are excluded from the remit of the commissioner are all subject to adequate and indeed more appropriate scrutiny by others, we consider Amendment No. 225 to be unnecessary.
	On Amendment No. 226, we say that there is no need to exclude the provision of information to SOCA from the remit of the commissioner. The security services in subsection (3)(d) are overseen by the Intelligence Services Commissioner, but this is not the case with SOCA. If Amendment No. 226 were accepted, there would be no independent oversight of the provision of information from the register to SOCA. I am sure that that is not what the noble Baroness intended—I see her nodding that that is so. We do not believe that it would be sensible to remove a safeguard from the Bill and therefore it should stay in situ.
	The effect of Amendment No. 224 would be that the commissioner would have oversight in relation to an excluded matter where a particular case raises a concern of substantial public interest. The amendment seeks essentially to achieve something which is already provided for in the clause. Taking paragraph (a) of the amendment, for example, while it is not for the commissioner to scrutinise the actual exercise of delegated powers—that is Parliament's role—it is clear from the text of Clause 24(2)(a) that it is his role to review the Secretary of State's functions,
	"under this act or the subordinate legislation made under it".
	Therefore,
	"any particular case affected by these powers or rules, which raises a concern of substantial public interest"—
	to quote the text of the amendment—would already fall within the jurisdiction of the commissioner.
	Paragraph (b) of the amendment is, in so far as it refers to appeals against civil penalties, no different from Clause 24(3)(b). Appeals are matters for the civil courts and it would not therefore be appropriate for the commissioner to have an overlapping jurisdiction. I do not think that is what the noble Baroness would want. However, we believe that it is right that the commissioner should have oversight of the rest of the civil penalties machinery because that will be run by the Secretary of State and, without the commissioner, would not be subject to any oversight. Therefore the aspect of paragraph (b) of the amendment which seeks to remove that part of the commissioner's jurisdiction is inappropriate.
	Paragraph (c) of the amendment would enable the commissioner to examine the prosecution of a person for a criminal offence under the Bill if it raised a matter of substantial public interest. We do not think that that is appropriate. Prosecutions are a matter for the police, the Crown Prosecution Service and the courts. In very exceptional circumstances, after the event, a prosecution will be the subject of an inquiry. It would be very unusual to empower a commissioner to review prosecutions that he considered to raise a matter of substantial public interest.
	Paragraphs (d) and (e) would give the commissioner jurisdiction to review the provision of information to the security services, once again subject to a substantial public interest test. Again, this would result in an overlapping of responsibility between the commissioner and the Intelligence Services Commissioner. Such an overlap can result only in confusion, and it is our view that sensitive issues such as this are better dealt with by those who deal with them on a daily basis.
	The first part of Amendment No. 227 is consequential on paragraphs (d) and (e) to which I have just referred. I shall not deal with it specifically unless the noble Baroness indicates that she is minded for me to do so.
	I shall now turn to Amendment No. 231 and those amendments that are primarily concerned with the reports of the commissioner. While I appreciate the arguments put forward in proposing these amendments, the Government consider that it necessary for the reports to be addressed to the Secretary of State with the potential for parts of the report to be excluded from the report laid before Parliament. This is primarily because of the function of the scheme commissioner in overseeing the provision of information from the register without consent.
	There are precedents for this in the oversight of police activities which fall to the Office of the Surveillance Commissioner. The Chief Surveillance Commissioner reports annually to the Prime Minister who has similar discretion to that set out in this clause. Similarly, when Her Majesty's Inspector of Constabulary reports to the Secretary of State, the Secretary of State has power to exclude from publication any part of a report on the grounds that not to do so would be against the interests of national security or might jeopardise the safety of any person. These amendments would remove the Secretary of State's discretion to exclude information held in a report, where he considers that a matter contained in the report would be prejudicial to national security or the prevention or detection of crime.
	There are certain circumstances, given the sensitivity of some of the information relating to provision of information without consent, where it would be prejudicial to these matters if a report were laid in Parliament which could then be publicly read. For example, the commissioner would have responsibility for oversight of the provision of information without consent to the Serious and Organised Crime Agency. I have already explained why we think the commissioner needs a role there, but I am sure noble Lords will understand the sensitivity of that role and the importance of getting it right. To make public for what purposes that organisation has been provided with information in every case would allow very sensitive information to be released. It would also be inconsistent with the usual oversight procedures for these bodies and as such may limit the use of the register by such bodies.
	It is fairly easy to see how information could be included in such a report that would be prejudicial to national security or the prevention or detection of crime, but another example of this is where information is provided to the police and to the Inland Revenue and Customs and Excise for their ongoing fraud investigations. We do not think it is appropriate to raise the exclusion threshold to "serious" crime since information may be provided without consent under the previous clauses for all crime. The Government therefore see this power to exempt information as necessary.
	There are safeguards to the use of this power, however. The practice of the Intelligence Services Commissioner and the Interception of Communications Commissioner is to provide a report to the Prime Minister in two parts, one to be laid in Parliament and a confidential annex not to be published. If such a practice were adopted by the commissioner, it would in effect allow the commissioner to determine which parts of his report should be made public, although this would be done in consultation with the Secretary of State. It would be a practical way of dealing with this sensitive issue.
	I realise that the powers of the newly created national identity scheme commissioner are of great interest, but it is important that we ensure that we provide the right balance of powers. We think that the Bill has found the right balance. We do not consider that it would be right to give the commissioner responsibility for investigating complaints, and we think that there is a very good case for the commissioner to report to the Home Secretary, as the Home Secretary's key adviser on how the identity cards scheme is being operated, rather than to report directly to Parliament.
	For the reasons I have set out as regards this large group of amendments, I hope noble Lords will see that: first, we agree with them on the need for scrutiny; secondly, we have provided for appropriate high-level scrutiny; and, thirdly, these amendments are wholly unnecessary.

Lord Lucas: I am very grateful to the noble Baroness for her reply to my Amendment No. 221A. I never imagined that Clause 24(2)(c) could be construed so widely. Perhaps I may ask her a couple of supplementary questions on that. I take it that in subsection (2)(c), the word "information" has its ordinary English usage and is not a defined term. Secondly, the noble Baroness said that the arrangements made for using the information can extend to the uses made of it. The arrangements I make for using my car are not the same as the uses which I make of my car. So in ordinary English I still find Clause 24(2)(c) extremely confusing. I cannot, as I say, in ordinary English, extend it as far as she wishes to the first part of my Amendment No. 221A. If the noble Baroness can assure me that there is some quirk of language where "arrangements made for using" are the same as "the uses made of", I should be extremely grateful.
	I should also be grateful for a reply to my Amendment No. 236A—unless I missed it, in which case I will be happy to read it in Hansard. I take the opportunity to urge my noble friend, when she returns with amendments on Report, to consider making it more explicit that the national identity scheme commissioner has responsibility for the effects of the scheme on the privacy of the individual, because that could well benefit from being made explicit in the Bill, rather than being left to the back end of an extremely obscure subsection.

Lord Stoddart of Swindon: My Lords, I had not intended to intervene in this debate until I heard the Minister's reply. What worried me about it was that she said that she did not accept the graphic picture of what the surveillance society that we already have meant. Frankly, she does not understand—perhaps, other Ministers do not—exactly what is going on, and neither do the people of this country. Most people probably think that surveillance cameras are good. We now have 7 million of them in this country—twice as many as any other European country. That is one for every eight and a half of the population. That is a considerable number of cameras that are spying on us. People say, "They catch burglars, and what have you". So they do.
	However, we read in the newspapers last week that they are also prying into ladies' boudoirs. There was a case that showed that one group of surveillance cameras was prying on the private life of a woman, even photographing her undressing in her bathroom. Things can get out of hand. That is why Ministers, in particular, and parliamentarians should not be complacent about what is happening. An identity card is a further intrusion into the privacy of the individual. There is no mistake about that. We have not had them before and when we have them it will be an intrusion into the privacy of every person in this country, once they eventually become compulsory.
	Legislation creep happens in some strange ways. I have been in this House for quite a long time and I remember when, in my first years, the late Lord Whitelaw was Leader of the House. We were discussing the interception of communications. One of the points raised was the position of Members of Parliament and Peers. We were given an absolute assurance that Members of Parliament and Peers' phones would never be tapped. Noble Lords trusted the Government and said, "Here is an upright man giving us an assurance that conversations between Members of Parliament and their constituents and Peers and people who care to write them should be absolutely private and sacrosanct". But our present Prime Minister refuses to give an assurance that that is continuing. That is why it is necessary to have absolute safeguards in the Bill—not just assurances from Ministers.
	Like other noble Lords, I very much appreciate the care with which the Minister has dealt with this group of amendments. They are complicated and her reply was complicated. As the noble Lord, Lord Crickhowell, said, we shall all read the details of her reply during the Recess and will deal further with them at Report. I issue this warning: Parliament must be ever careful of what the Government do, and the Government, if they have any democratic credentials, should be at least as keen as parliamentarians to ensure that the traditional freedoms of individuals in this country are safeguarded.

Lord Thomas of Gresford: The position of the national identity scheme commissioner is to supervise the operation of the Act. Therefore, he must be regarded by the Government as a very important safeguard against the possibility that government may misuse the very extensive powers that the Bill gives them.
	It is disappointing, therefore, how limited the role of the national identity scheme commissioner is in subsection (2). On analysis, one sees that the commissioner is confined to considering structures and frameworks. Paragraph (a) refers to,
	"the arrangements for the time being maintained by the Secretary of State".
	Paragraph (b) refers to,
	"the arrangements for the time being maintained by designated documents authorities".
	Paragraph (c) refers to,
	"the arrangements made, by persons to whom information may be provided".
	Separately is,
	"the uses to which ID cards are being put".
	Presumably that refers to the uses made by the holders of those cards. I do not understand why the Government should resist the first suggestion of the noble Lord, Lord Lucas, in Amendment No. 221A:
	"the uses to which information recorded in the Register is put"
	by the Government. Why should the commissioner look at how the holder of an ID card uses it if they do not look also at how the Government use the information on the register?
	Everything is subject to extensive exceptions under subsection (3). I noticed paragraph (c), which refers to,
	"the operation of so much of this Act or of any subordinate legislation as imposes or relates to criminal offences".
	I repeat:
	"as . . . relates to criminal offences".
	Like the noble Lord, Lord Stoddart, I believe that the people of this country who are not yet alive to the significance of the legislation would at the very least expect that their privacy and the confidentiality of the information provided on the register would be preserved. Those matters are referred to in the second part of Amendment No. 221A, tabled by the noble Lord, Lord Lucas, and Amendment No. 222, tabled by my noble friend Lord Phillips of Sudbury.
	What do we see in relation to criminal offences? Under Clause 29 the unauthorised disclosure of information is a criminal offence. It states:
	"A person is guilty of an offence if . . . he provides any person with information that he is required to keep confidential".
	Clause 30 creates an offence of providing false information for the purpose of making an entry on the register. Clause 31 creates an offence of tampering with the register. Surely the operation of the legislation in relation to those offences, which deals with the protection of confidentiality, the accuracy and integrity of the register and so on, should come within the scope of the functions of the national identity scheme commissioner. He ought to be able to say that the scheme as set up is unsatisfactory in terms of protecting privacy and confidentiality. He ought not to face an argument, one that would not be put in a court of law but by someone from a ministry, which states, "You cannot inquire into the unauthorised disclosure of information, the providing of false information, tampering and so forth, because those are criminal offences. You cannot look at anything related to criminal offences".
	The area covered by the national identity scheme commissioner has been unduly limited. He should be given the widest possible remit to investigate all matters arising out of the operation of this Bill when it is enacted. In so far as these amendments seek to widen his remit, I support them entirely.

Baroness Scotland of Asthal: If I dealt with all these amendments in graphic detail, I would avoid having to say any more. But of course I never quite manage to deal adequately with the noble Lord, Lord Thomas of Gresford. I shall therefore respond to the issues that have been raised.
	In response to the noble Lord, Lord Crickhowell, the number of complaints we have currently received relating to the UK Passport Service is 8,386, which is the equivalent of 0.16 per cent of the total business, while we have received some 1,685 positive comments. The most recent survey, carried out in November 2005, suggests that 80 per cent of those interviewed did not take their complaint beyond the first stage.

Baroness Scotland of Asthal: While I hear what the noble Lord says, we do not agree. Looking at the kind of complaints and the process here, we believe it is important to ensure that the procedure is accessible to people so that they can raise their concerns and know that they will be dealt with quickly and efficiently. We have here a detailed complaints procedure that has proven its worth over time. That is why we have relied on it.
	In response to the noble Lord, Lord Lucas, I should say to him that I have dealt with his amendment. I tried to do so at speed, but I am sure that he will be able to read what I said. The word "information" as used in Clause 24(2)(c) has its ordinary English meaning. I reiterate that the drafting here covers the spirit of the noble Lord's amendment. His point here is perhaps arguable. I shall look again at the first half of his amendment. I think it is completely covered, but in case it is not, I shall review it so that we can come back to it. I shall certainly endeavour to write to the noble Lord between now and Report to see whether there is anything else in it. I do not think there is, but it might be worth looking to ensure that that is right. On the points raised by the noble Lord, Lord Thomas of Gresford, Clause 24(2)(d) refers to anyone, not just the holder of an ID card.
	I hope that I have been able to reassure noble Lords that the plethora of opportunities which there now are to scrutinise these provisions will enable the commissioner to do his job and to do it very well indeed.

Baroness Scotland of Asthal: I do not think that it is intended to be. I said that I would look at the first half of the noble Lord's amendment, which says,
	"the uses to which information recorded in the Register is being put".
	I very much understood the way in which the noble Lord argued it. As it is arguable, the amendment could be seen as the other half of Clause 24(2)(d). I do not think it is—I think it is fine—but the noble Lord has raised a point and it is worth looking at to ensure that we have dotted all the i's and crossed all the t's.

Baroness Anelay of St Johns: I thank all noble Lords who have spoken in this important debate on the part of the Bill relating to the commissioner's work, which will affect the confidence that people may have in the operation of the whole scheme. It would be wrong of me to go into detail, and we will be looking at the Minister's reply very carefully, but it might be helpful if I were to point out one or two areas to which we will most definitely need to return on Report and others where we may not. First, however, I said that I would not return to Amendment No. 226. I entirely accept the Minister's argument on that matter. I will consult my noble friend Lord Northesk on Amendment No. 221, but I suspect that he may well accept the Minister's argument on that.
	Amendment No. 223 relates to the matter of complaints and shows the difference in approach between noble Lords and the Government on these issues. It reflects the concern on this side of the House that the commissioner needs to have an independent oversight in his role of protecting the rights of the individual, reporting to the individual and involving Parliament in scrutiny, rather than this being a matter where it is convenient for the Secretary of State to have the reports and the accountability, so that he is assured, in his eyes, that the system is working properly.
	I particularly took note of what my noble friend Lord Lucas said on the issue of privacy. I assure him that I shall look very carefully at that matter before the Report stage. I was interested in Amendment No. 222, tabled by the noble Lord, Lord Phillips of Sudbury. I certainly hope he will develop it at Report stage so that I can see whether there is anything else I need to do on the issue.
	I was certainly taken aback by the way in which my noble friend Lord Lucas painted a picture of the future. He put his finger on the importance of the extent to which the public accept—or, indeed, not accept—how the scheme might roll out and the impact it might have as society evolves over the next decades. At Report, in looking at the role of the commissioner, we will need to ensure that there is a way of enabling the public to exercise their right to complain about how the system may be developing in a way they had not anticipated. That will drive our approach. Indeed, my noble friend Lord Crickhowell opened the debate by pointing out that it should be the commissioner's primary task to act as a supreme protector of the public via Parliament. We will try to frame a series of amendments to provide that protection. I beg leave to withdraw Amendment No. 221.

Lord Phillips of Sudbury: A good deal of the substance of Amendment No. 228 has been dealt with by what the noble Baroness, Lady Anelay, said on the last group of amendments and what the Minister said in response. There were contributions to that debate by various noble Lords, so I shall keep this brief. To reassure the House, I propose to withdraw Amendment No. 229 in the interests of getting through the remaining business, but I do not think that the Government have given sufficient thought to the importance of complaints. The noble Lord, Lord Crickhowell, was correct in saying that there is not much comparison to be made between complaints to the passport office and the sort of complaints that we will have to contend with under the Bill.
	For a start, the day when having identity cards will be compulsory will, I suggest, be a contentious day. I know that many noble Lords think this is a straightforward managerial piece of legislation which nobody should object to but, believe me, millions of people are unhappy about it. Whether one is talking about designating the renewal of passports as having to be accompanied by ID cards or the day when 100 per cent of the public have to have them, I think one must anticipate a considerable amount of citizen unrest.
	Under Clause 5(5), when an ID card is issued, citizens must go for an interview, allow fingerprints to be taken, allow themselves to be photographed and otherwise allow themselves to be dealt with as the Secretary of State may require. The potential for upset is of a wholly different order from that involved in getting passports. Under the Bill, there is a penalty regime attached to failures; there is no penalty regime with regard to passports. To have nothing in the Bill that refers to complaints seems almost wilful.
	I know that the noble Lord, Lord Bassam, is as keen as I am to have the Bill that emerges from this place in a form which is helpful to the public, not one which needs a textbook to interpret it. I fear, day by day, that that is where we are headed. The complexities of many of these clauses are such that only a textbook will do; one will need a lawyer specialising in ID law to steer one around. Everybody groans—I groan myself—but that is the reality. However, I was comforted by the noble Baroness making it clear that the language of the Bill, although it makes no reference to complaints, is intended to give the commissioner a general oversight role—not to deal as a front-line recipient of complaints, but to see whether the scheme is working well or badly and, as part of her report, to make suggestions to Parliament, the Secretary of State, and so on.
	With regard to Report, I would be grateful if the noble Baroness would think more about this in terms of the language of the Bill. I cannot see why there should not be a reference in the relevant clause to this very important role. I would be perfectly happy if the role was not that of a front-line recipient but of a general overseer. That would be reassuring for the public and would be helpful as authenticating the role of the commissioner vis-à-vis the complaints system. For all those reasons, and many others, I commend the amendment to the Committee.
	Perhaps I may read from the October report on the Bill of the Select Committee on the Constitution. Paragraph 9 of Appendix 1 states:
	"We believe this provision"—
	that is to say, laying the report before Parliament rather than the Secretary of State—
	"might be strengthened, to general advantage, in three ways. First, the Commissioner should be independent of the Secretary of State; second, his powers should be extended to include such matters as investigation of complaints".
	I have already conceded that if the commissioner were not charged with getting into the role of answering complaints generally, that would be sensible enough.
	The Minister will not have reflected the views of us who are keen on this amendment by saying that one could always go to the Parliamentary Ombudsman. The Parliamentary Ombudsman is an extremely distant creature for most of us. If you were to conduct a poll on the high streets of Great Britain, not one in 100 people would have any idea of what the Parliamentary Ombudsman really does. In any event, one can only get to the Parliamentary Ombudsman through an MP. Why should one burden an already burdened group of good men and women with very many complaints? I can assure the noble Baroness that it would make the 8,000 or so complaints to which she referred look tiny. I say that without any happiness. We need to provide something better between the citizen and the courts, or the citizen and the Parliamentary Ombudsman, than a void. I beg to move.

Lord Bassam of Brighton: I am grateful to the noble Lord, Lord Phillips, for raising this issue—although he is right in saying that much of it was dealt with in the earlier debate, in the very full response given by my noble friend Lady Scotland. I have a great deal of sympathy with the noble Lord, Lord Phillips, as he knows, on the subject of complaints, because I see complaints as a form of intelligence, ensuring that organisations that receive complaints are much more sensitised to the important value of issues that individual complainants bring to them collectively. In an earlier life, I used to ensure that we in our local authority had a very effective complaints process, for that very reason.
	It would be unwise of me to go over territory that has already been covered. It would not be right for the commissioner, as the noble Lord, Lord Thomas of Gresford, has argued that he should, to consider particular complaints in the form of a complaints service. If the commissioner did that, the important work of oversight of the operation of the scheme would be lost. That would not be helpful, not least because it is very important that the commissioner fills those valuable functions.
	In the first instance, it is proper that the agency organises itself well enough and is properly tasked with issuing identity cards and dealing with the complaints that arise from that. We do not want the commissioner to be overloaded with a complaints function, but we want the commissioner to be effective in reviewing the operation of the identity cards scheme more fully, including the way in which the agency itself handles complaints.
	I go back to the issue of how the United Kingdom Passport Agency handles its complaints. Although the noble Lord, Lord Crickhowell, has a point that there will be differences—in some instances, large differences—much of the way in which the United Kingdom Passport Service handles complaints will be relevant. Currently, the passport application pack contains a leaflet explaining the complaints procedure. It sets out the information that the UKPS needs to resolve problems and explains that complaints can be made by letter, fax, email or telephoning the 24-hour number given in the leaflet. That means that the UKPS is very accessible.
	There is then a four-step process for complaints; they are initially handled by a customer service team in each regional passport office; customers who are not satisfied with the response from the regional office may take the matter up with the customer services department at the national headquarters, which also deals with general complaints about policy, unrelated to individual applications. Thirdly, customers who are not satisfied after steps one and two are advised to take their issue to their MP, and to take it up with the chief executive or the responsible Home Office Minister. Finally, any complaint not satisfactorily resolved by those means can of course be taken up by the parliamentary commissioner in the normal way. That process works well, and the management of complaints through the UKPS is very effective.
	Clearly, that system of complaints handling will need to be reformatted in some regards to deal with the additional work and workload that the ID cards scheme will give rise to, but it provides a very good basis from which to work. My noble friend Lady Scotland has already explained the positive response that the service receives from those who have made complaints, many of whom—some 52 per cent—were satisfied with the final outcome of complaints redress. We are told by market researchers in the field that that figure is very high in terms of responses.
	Complaints handling will be a routine function that the agency will need to fulfil. Members of the public will be able to contact the commissioner with complaints about the agency's conduct, even if the commissioner directs the majority of those sorts of complaint back to the agency's internal complaints handling process. The overview of complaints will enhance the commissioner's awareness of the agency's performance and enable him to make further inquiries into any specific complaints. Additionally, should the commissioner request it, he would be able to be provided with information relating to any or all the complaints that the agency had received, particularly if the commissioner felt that it had a bearing on the way in which the agency was operating. It is also likely that he will scrutinise the agency's own complaint-handling procedures as part of the research for his annual report. Staff will be under a duty to co-operate with the commissioner and provide information to him, as has been said, by virtue of Clause 24(4). If the commissioner is dissatisfied with the handling of complaints in general, or of a complaint in particular, he can raise it directly with the Secretary of State and refer to it in his reports, which are made to Parliament under Clause 25. There is little that would prevent the commissioner from looking at the ways the agency handles complaints, and from taking an interest in individual complaints where that is required.
	In conclusion, it is worth saying that we have listened seriously to what the noble Lord, Lord Phillips, has had to say about this. Without making a commitment to look at individual complaints, in the sense of setting up a complaints procedure for them, I can say—and we have not said this before—that we are happy to consider again the commissioner's ability to review the effectiveness of complaints-handling processes within the agency, and to see if we can add something about that to the Bill. I hope the noble Lord will find some satisfaction in that.
	We take this issue seriously. I finish as I started, by saying that the Government generally view complaints positively, as we know they can help us, if we look at those complaints with intelligence, to improve the quality of service over time. That is what we want to achieve here.

Lord Phillips of Sudbury: I do not know what to say to that—bash on, I think. Amendment No. 255A would require the Secretary of State, before imposing a penalty, to send the defaulter written warning of his intention together with brief details of the alleged default, so that the defaulter can say whether the Secretary of State has the wrong person or that he had a heart attack on the day he was supposed to attend an interview at Peterborough, or whatever else.
	We could be arguing about nothing because the code that is to be promulgated under the Act refers to warning letters and penalty notices. For those Members of the Committee who do not know what I am talking about, I am referring to the draft code of practice issued by the Home Office on the ninth of this month and sent to many noble Lords. However, I suspect that some noble Lords do not have a copy. Part 3 of the code, headed,
	"Warning letters and penalty notices",
	states:
	"Before imposing a civil penalty for non compliance with a requirement, it will normally be appropriate to send a warning letter setting out the reasons why the Secretary of State has reason to believe liability to a civil penalty has arisen and urging compliance".
	I think the Home Office drafted that after it saw my amendment. But, be that as it may, I do not mind as long as we have a fair procedure. It is plainly not fair to get a penalty before you have said your piece.
	We are now arguing about whether this vital provision should be on the face of the Bill or be left lurking in a code—a code, incidentally, which can be changed by negative resolution. It is such a fundamental right to be told what someone is proposing to penalise you for in order that you can say your piece before he or she makes a decision to penalise, my legal instincts tell me that it should be on the face of the Bill, albeit that even in the code it has the same legal effect. We are talking about presentation and what somebody looking at the Bill will see rather than what they might see if they read the textbook—I refer to the note at the bottom of page 311.
	We have had discussions on this before, when I raised in extenso the whole question of whether the penalty regime is in fact a criminal code. It is not necessary for me today to enlarge on or repeat that, except in the context that if I am right in my feeling that this should be in the Bill, it certainly should be in the Bill if this is a quasi-criminal regime, as I believe that it is. Noble Lords may remember that on the previous Committee day I referred to some of the tests that the European Court will apply in deciding whether a code that calls itself "civil" is or is not criminal.
	Apart from her general response, I would be grateful if the Minister would answer three points. First, the code says that a warning letter will "normally" be sent—that is not good enough. If a penalty is in the process of being slapped on a citizen, a warning letter must be sent, and I see no exception to that. These are not small penalties; we are talking about penalties of £1,000 to £2,500. The notes accompanying the code say that the general level of penalty will be a quarter of the maximum so that if, for example, I refuse to have my photo taken when I get to Peterborough, or I miss the bus, I am in line for a penalty of £625, which is an awful lot of money to many in this Chamber, let alone some of our less fortunate citizens. I hope that where the draft code now says it will be "normally" be appropriate to send a warning letter, the noble Baroness will accept that it must be appropriate.
	Secondly, there must be a time limit for a response, and the draft code gives no such time limit. The citizen should have a clear and unbreakable right to send in his or her representations within a certain time. Finally, I would be grateful if the noble Baroness would clear up an uncertainty that arises from the draft code. On page 12, under the section about representations being made after the fine has been imposed, it says that representations may be made by "telephone or e mail" as well as by mail. There is no reference in the earlier part dealing with warning letters—letters that go out before the penalty notice is applied—to the right of the citizen to send in telephonic representations. If at the end of all this we are told that there will be a warning letter, there will be a time limit and there will be the possibility of responding by telephone, I will at least be much assuaged, if not wholly persuaded. I will do the Chamber a mercy if I sit down now, although there are all sorts of interesting things that I wanted to say. I beg to move.

Lord Stoddart of Swindon: I really am sorry to interrupt again, and am most obliged to the Minister for giving way. I am still not satisfied that a person could not be put in jail. If you have distraint on all a person's possessions, and put him out of his house because of his conscientious objections, what happens then?

Baroness Noakes: I had intended to take no part on the Bill whatever. So far as these Benches are concerned, it is in the capable hands of my noble friends Lady Anelay and Lady Seccombe. However, on the first day of Committee, I happened to be in the Chamber—as one does—and I came across a fascinating debate on the costs of the national identity register and identity cards in connection with Amendment No. 1 tabled by my noble friend Lady Anelay. Many good questions on the subject of costs were put to the Minister from all sides of the Committee. However, it is fair to say that the Front Bench opposite gave little of substance in response.
	The Minister has since sought to provide further information in a letter circulated to Members of the Committee on 12 December. While nearly six pages of the letter were devoted to costs, not much light was shed. Rather, the letter concentrated on the information the Home Office would not give. Therefore, in consultation with my noble friend Lady Anelay, I have tabled Amendment No. 259A to try to make some progress on the costs associated with the Bill.
	The amendment is simple in concept. Subsection (1) says that the Government may not make use of the ability to charge fees in Clause 37 until they have satisfied both Houses of Parliament as to their estimate of the costs that will be involved in the implementation of the powers in the Bill. The Secretary of State could, in theory, start to use the powers in the Bill to place information on the register and to issue ID cards without making any charges, but I have judged that the Secretary of State would not, in practice, want to do that and would not have budgetary cover if fees could not be charged.
	The Minister may well say that a delay on the fee-charging provisions of the Bill is a curious way for Parliament to get some information on costs, and it would probably be better if Parliament's satisfaction on costs preceded some of the other powers contained in the Bill. I intend to research that before we reach report. The Minister will therefore be aware that I regard Amendment No. 259A as a probing amendment for the purpose of today's debate in Committee.
	In a moment, I shall explain the contents of the rest of the new clause, but it may help noble Lords if I put that in context. The Government have given very little information to date about costs. We have been given one figure of £584 million, which seems to be some kind of annual cost, averaged over a number of years, possibly 10. Any attempt to elicit further information has not been successful. The Government have broadly rested on an assertion that it would compromise their commercial position if any more information were given either about Home Office costs or about the costs that other departments might incur. We are pretty sceptical about the commercial confidentiality argument but, more importantly, we regard it as unacceptable that the Government have introduced legislation that will have far-reaching effects on the citizens of this country without being prepared to discuss the full costings with Parliament. I cannot think of a precedent for this.
	Realistically, we know that the Government can be obdurate on the matter of denying information to Parliament. Parliament in turn has two possible responses. The first is to defeat the Bill completely. The Bill has already completed its passage in another place and so your Lordships' House would need to set itself in opposition to another place. For those on these Benches, that is not an attractive prospect, especially for a Bill that has, to some extent at least, the backing of a manifesto commitment.
	The second course is the one that underpins my amendment. It is to give the Government the benefit of the doubt, so far as legislation is concerned, but, at the same time, to ensure that once the costs are better known, or are, at least, in a shape that has fewer confidentiality constraints, Parliament will be able to scrutinise the costs properly before the powers in the Bill take full effect. That seems to us to be a fair and reasonable response to the Government's obstinacy.
	I shall now turn to the detail of my amendment. Subsection (2) of the new clause defines what we mean by costs. First, it covers both capital and revenue costs. There was some confusion in the earlier days of Committee about whether the Government's own estimated annual costs of £584 million covered both revenue and capital costs. The Minister repeatedly said that the £584 million is the annual running cost, which implies that it includes nothing for capital costs and, possibly, other up-front costs. The Minister said that she would give no details to the Committee on capital costs, but she did say:
	"Looking over a 10 to 15-year period, the operational costs . . . are far greater . . . than the capital cost of initially setting up the system".—[Official Report, 15/12/05; col. 988.]
	So, on the Minister's own analysis, that places the capital costs at a figure somewhat below the range £5.8 billion to £8.7 billion. That still implies a very significant figure, but somewhat less than some others believe will be involved. I am not today going to go into the analyses produced under the aegis of the London School of Economics. Suffice it to say that the capital costs are a major matter of dispute. That reinforces the need for Parliament to look at precisely what is in those figures and how allowances are made for capital spend, both during and after the initial phase of implementing the Bill.
	There is, however, a mystery about capital costs. In a Written Answer to the noble Lord, Lord Barnett, whom I am glad to see in his place, the Minister said:
	"The cost of depreciating the initial capital costs have been included in the annual operational costs".—[Official Report, 30/11/05; col. WA 38.]
	That implies that the estimate of £584 million includes something for capital. We do not know how much and we do not know what depreciation methods or asset lives have been used.
	As I have mentioned, the noble Baroness hinted at orders of magnitude. Suppose that capital costs come in at the lower end of the 10-year figure for annual costs and amount to, say, £3 billion. That would be less than half the cost of the current NHS IT programme, so it is probably on the light side. Let us further generously assume that there is a 10-year life for those capital costs. Ten years is a very long time when talking about IT systems, but let us use it as an example. This implies annual depreciation costs of £300 million a year, which would leave non-capital costs within the £584 million of around £284 million.
	But that does not make sense because the Passport Services' plans for 2006–07 estimate that its total costs will be £397 million. So is it the revenue costs that are the problem or the capital costs? The Minister will see why so many of us are concerned to understand the financial dynamics of the register and of ID cards. Subsection (2) will ensure that the Government disclose all the costs, including capital and initial costs. But the subsection goes further and makes it clear that the costs included in the costs estimate cover the whole of government. The Minister made it clear on the first day of Committee that the costs she was talking about were partial, covering only the costs of the Home Office. She said that,
	"the figures for other departments are for them; that they will have to find that money from their budgets; and that I am unable to tell the Committee the figures that other government departments will need to find for that".—[Official Report, 15/11/05; col. 986.]
	We are clear that that is not acceptable. The Minister should always speak for the whole of government and Parliament is entitled to see the full financial consequences for the public purse. As I understand it, the Government have never said exactly how the register will be used, but it is clear from the Bill and earlier debates that the Department for Work and Pensions, the DVLA and HM Revenue and Customs will use the register—and I understand that the ID project now subsumes the National Population Register, which the Office for National Statistics wants. It does not take much imagination to produce a long list of other departments which would wish to use the register. Indeed, I understand that the Home Office's procurement strategy sounding document identified 265 government departments, and I hope that the Minister will be able to confirm or elaborate on that when she responds.
	It is important to understand that I mention other government departments not only for the costs that those departments will incur but also for the costs of the Home Office itself. That is because the design of the register, and therefore the cost of the register, will have to take account of all potential users of the register. I should mention in passing that there will also need to be clarity about the non-governmental users of the register because that too will drive the costs of the system. The procurement strategy document I referred to earlier cites 44,000 private sector organisations being accredited for this purpose. I hope the Minister can say something about that as well today.
	Subsection (3) states that the cost must cover a period of at least 10 years, although the Secretary of State can specify a longer period. If the Minister thinks that a longer or different period should be chosen, I am open to offers on that. Also in subsection (3), the start date for the cost estimate has been set as 26 April 2004. As I am sure that the noble Baroness is aware, I chose that date because that is when the Government published their first Identity Cards Bill, which seems to represent a reasonable start point. Again, if the Minister thinks that an earlier or later date would be appropriate, I would be happy to reconsider that.
	Lastly, subsection (3) requires the cost estimates to be analysed into financial years. That is important because the only figure that the Government have given so far is the £584 million of annual costs. As I mentioned earlier, that is some sort of average, but we know that costs never occur in such neat bundles. For example, the scheme will start as voluntary and progress to be compulsory. It will be important to see the impact of that on costs. Capital costs are lumpy, as are initial and set-up costs. Also, costs such as maintenance do not occur evenly over time. I imagine that the Government have made some forecasts of unit cost reduction based on learning or experience curves. Wage inflation alone will mean that the salary cost element, even when deflated by the GDP deflator, will not be the same each year over whatever period. Seeing how those costs fit into each financial year will be an important part of Parliament understanding the Bill's impact on government expenditure.
	The final subsection of my new clause requires the Comptroller and Auditor General to examine the cost estimate and report on it to Parliament. Parliament is entitled to some external verification of the numbers. I am aware that the Home Office commissioned a review by KPMG. For the information of the Committee, I mention that I am a former partner in KPMG but, nevertheless, claim no special merit for a report bearing its name. We have not seen the full report or the terms of reference, but it is clear that, even if we did, it would not amount to an audit of the figures, which is what my amendment requires.
	I am conscious that my amendment deals with only one side of the cost/benefit equation. The Government have given a broad overview of benefits that the Home Office foresees from its perspective, as well as some benefits potentially accruing elsewhere. The amounts indeed appear significant. The Minister may find my amendment lopsided in not seeking to ascertain the truth about the calculation of benefits but, as I said, this is a probing amendment for the purposes of our discussion in Committee and I hope to consider our discussion carefully with a view to tabling an improved amendment on Report. I beg to move.

Lord Phillips of Sudbury: My name is on the amendment. The issue of the estimated capital costs of establishing and integrating as well as then running the identity card scheme could not be more important constitutionally. That is a crucial factor in legislation at any time, but with a project such as this—untried, grandiose in world terms let alone national ones, and affecting every adult member of the population in due course—it is paramount. In our system, where there are few separations of powers between the legislature and the executive, the role of opposition parties in this situation is clear. But holding any government effectively to account is even more an anticipatory exercise than one of auditing the aftermath. Prevention, as usual, is much better than cure, if cure there be.
	Although Ministers opposite may raise an eyebrow when they hear it, one does try to put oneself in their shoes over issues such as this. So is it reasonable for us to be adamant on the issue of costs? Is it not enough to rely on the partial statistic that the Government have provided bit by bit? The questions are self-answering. The Government have refused to give broad, comprehensive estimates—and I refer particularly to the start-up costs—on grounds that,
	"the estimates are commercially sensitive and to release them may prejudice the procurement process and the Department's ability to obtain value for money from potential suppliers".
	That is, I believe, untenable. Let us be clear. If any government on any Bill, of whatever importance and scale, can deny MPs and Peers key estimates without which the legislation will be no more than a financial pig in a poke, we are in real constitutional trouble. If the choice really is between prejudice to a procurement process and prejudice to proper parliamentary deliberation and legislation, the latter is overwhelmingly more important. The cart must not be put before the horse.
	Furthermore, the London School of Economics group has discussed the commercial sensitivity of opposition requests with more than 20 of the key private sector tenderers, and both they and the LSE group reckon that any sensitivity is all but non- existent. I believe that the intervention of the noble Lord, Lord Barnett, was to the same effect. What will rule with the commercial players is the sort of prices they expect the competition to quote and the value to them of the contracts concerned, which are potentially enormous and will put them in a world-wide lead. Refusal to supply Parliament with key cost estimates in a Bill such as this damages the legislative process profoundly. Politics, after all, is about choices. If ever there was a Bill where that was relevant, it is the Identity Cards Bill. Claims made by the Government as to its beneficial effects on crime, social security fraud, immigration abuse, national security and whatever else has been widely challenged. The recent remarks by the former head of MI5 highlight just one aspect of that.
	In order to legislate sensibly we need to be able to compare alternative uses for the huge sums which the ID card scheme will devour in terms of increasing, for example, police numbers, the number of entry port officials, social security factual checks and so on. The difference between the latest LSE thinking, which is still short of a worked-out revision of its cost estimates, of between £19 billion to £24 billion over 10 years, and the £6 billion to which the Government have owned up—confined as it is to the cost of issuing identity cards and passports over the same period—is hopelessly wide. The House, the country and the taxpayer ought to have the best available estimates.
	It is not as if the ID scheme is straightforward. It is novel in world terms. Such a national, central, compulsory, complex database is unprecedented. Surely we are wise enough by now to realise that government estimates of the cost of such ambitious projects need the most sceptical scrutiny. Whether it is the Scottish Parliament, the Dome, the Eurofighter or any weapons system you care to mention, the writing has been on the wall for decades. It says, "Legislator beware".
	I accept that it is difficult to estimate costs in these circumstances, but that is precisely why Parliament must have the best "heads-together" assessments. That is particularly the case here, where the Government have hung their hat on the scheme, against widespread opposition, and may, very humanly, be tempted to gild the financial lily.
	Lastly, I should like to say a word in praise of the LSE group. It was wrong of the Government, in this House and in the other place, to criticise its work in the way they did, accusing it of lacking rigour and, indeed, questioning whether it was an LSE report at all. Sir Howard Davies, director of the university, has authorised me to quote from a letter he wrote to me recently in which he said:
	"we have had some extraordinary responses to our work from the government, who appear to think that they can deal with a Report from a group of academics from a University in the way they would a submission from the official opposition".
	This House, and indeed the country, should be immensely grateful to the LSE group. It has endeavoured, with one hand tied behind its back in terms of government co-operation, to do the work that the Government themselves should willingly have done and even now should do.
	Further, in the correspondence to which I have already referred, the Government have made it clear that they have not obtained from any other government departments the set-up and integration costs of utilising the ID card database. So all the figures with which we have been provided have been confined to Home Office expenditures. What we do know from the letter from the noble Baroness is that nothing is allowed in the £584 million annual running costs for the set-up costs or initial capital outlay, the proposed online identity verification service, the necessary enhanced and enlarged IT infrastructure capacity and so on.
	I have spoken at large to the amendment. No doubt aspects of it could be improved, and indeed the noble Baroness, in so well moving the amendment, said as much. I still do not see why the Government could not at least open the workings of the ministerial committee on identity cards, chaired by Tony McNulty, to Opposition MPs and Peers, so that these matters can be looked at in detail and in confidence. LSE experts should be admitted to that process, again in confidence, to bring their immense body of knowledge to the aid of the general endeavour. At the end of those deliberations, Parliament should have before it the key all-in statistics, with some of the finer print known to, and understood by, Members of this and the other place. That should allow us to do our duty in a proper way.
	The only thing that strikes me as being constitutionally and practically unacceptable is to allow the Bill to proceed on the present, semi-blind basis.

Lord Bhattacharyya: There is some good news in the amendment: it seems that the noble Baroness, Lady Noakes, and others who support the amendment no longer have any major concerns over the principles of the introduction of the system of national identity cards. If not, we would not have moved so far.
	The concern expressed in the amendment is the cost of implementing ID cards. I am a technologist; I have a huge laboratory where we carry out image analysis and scanning. We are also experienced in implementing big IT systems throughout the world. The new clause could only be supported for one of two reasons—either the project is of such tremendous complexity that the Government have to be protected from getting lost in a technological maze, or it is potentially so costly that the Government have to be able to monitor costs so that they do not spiral out of control.
	Today we are being asked to believe that the project of modernising our system of passports to incorporate biometric measures and to expand their coverage to ID cards for the 20 per cent of the population who do not have passports is so hugely complex that the Government cannot be trusted to carry it out without the most zealous financial oversight. It is, after all, just a marginal cost. The system has to be there.
	First, let us consider the technology. Most of the technology behind any system of biometric ID card implementation is far from new. Most of the tools of biometric recognition—fingerprints, facial or irises—have been in use for many years. The technology behind image recognition has been there for the past 30 or 40 years. We are not travelling blind when it comes to using this technology.
	In the United States, the FBI has the largest biometric database in the world in its Integrated Automated Fingerprint Identification System. It contains the fingerprints and corresponding criminal history information for more than 47 million subjects in the Criminal Master File. It may be the wrong example to give, but I want to demonstrate the scale. The system provides automated fingerprint search facilities, latent search capability, electronic image storage and electronic exchange of fingerprints and responses 24 hours a day, 365 days a year. The speed of retrieval is obviously determined by the technology of implementation.
	Today, the most recent of these technologies—iris recognition—is being used in Afghanistan for identification purposes. I am sure that all Members of the Committee are very aware that Afghanistan is not renowned for being at the forefront of the use of high technology. There are many IT systems in operation or in development many times more complex than the proposed ID card system. The upgrade of the national air traffic system had some minor glitches at the outset—which of course our press loved—but it is now working extremely well. This year, our national air traffic control system will control all traffic movements over the United Kingdom and the eastern part of the northern Atlantic. It will ensure the safety of some 2 million aircraft movements, carrying some 180 million passengers.
	Another example is the supercomputer at the Met Office, which has been very successfully implemented. New massive computer systems collecting and modelling huge amounts of complex data work. It does not make the headlines if they work. It is the ones with problems, such as some in the public sector, which get reported.
	There is nothing hugely complex or difficult about the data collection or the management system that a national ID card system will entail. So what about the cost? Biometric forms of identification are coming. The US is already well down the road and Canada is not far behind. And only this month, the European Union announced that by 2008, the use of biometric data will be included in all passports issued by member states. The technology of image acquisition, storage and biometric data retrieval has to be undertaken anyway, and it is largely a proven technology. The expenditure will have to be committed for passports anyway. Currently, the Passport Office spends almost £300 million a year and the DVLA almost £500 million a year. As the market develops, the cost of the technology will fall. It is only because the market is still very small that the cost of the technology is high.

Lord Bhattacharyya: The specification of the national air traffic control system was wrong. It did not identify the complexity of the system. I know that because I have known for a very long time the man who was responsible for it. That is why it is important in this case that we conduct pilot schemes and the get the specification right from the very beginning. Only then will we be able to get our costs under control. The costs of a complex system such as the national air traffic control system may have gone up because of the incorrect specification, but it was implemented without any major glitches. Had it not been, we would all have had crashes.

Lord Macdonald of Tradeston: I support what the noble Lord, Lord Bhattacharyya, said about the importance of process. I was delighted to see the Bill arrive with a detailed regulatory impact assessment. However, the Bill has now gone through the Office of Government Commerce gateway process, which was introduced simply because so many projects—particularly those which we had inherited from previous administrations—were running over budget. We also inherited other processes such as PFI from the previous Conservative administration. Indeed, through implementing that properly, the majority of projects now come in on budget and on time unlike in the past.
	So process is important. As well as the Office of Government Commerce gateway process, I see that the department has put in place an independent assurance panel to provide additional oversight of the programme. I know that the noble Baroness, Lady Noakes, has a high reputation in matters of financial analysis, but I hope that the Home Office business case, as analysed by that KPMG independent review, would meet even her own high standards. The review concluded that,
	"the methodology used to cost the ID cards proposal is robust and appropriate for this stage of development. We recognise, in the areas we reviewed, the high quality of the Outline Business Case and supporting information that has been produced to date by the ID Cards Programme".
	The noble Lord, Lord Crickhowell, pointed to KPMG's concerns about sensitivity analysis and so on, but we also should note that a summary of work in progress has been published by the Home Office in response to those KPMG points.
	As has been said repeatedly, ultimate scrutiny rests with Parliament, but the scheme will go through the Treasury first. Having been recently been involved in financial reviews under the present Chancellor, I can assure noble Lords that the relevant departments will require a robust business case and cost/benefit analysis before they get past the Treasury's scrutiny. We should bear in mind in this place, as always, that the other place will approve the estimates of government expenditure.
	On the question of commercial confidentiality, I am sure that the Government will make information available where possible. If it is as important in constitutional terms as the noble Lord, Lord Phillips, said, it certainly will be available. But it is also prudent that you do not provide such detailed costings as to give an exact benchmark of how much you are prepared to spend to contractors. You would perhaps be putting too much faith in the competitive process in that regard. There would be situations where some element of discretion might be sensible.
	As for the requirement that the costs incurred by other departments over 10 years be estimated, that is simply impracticable. The huge variety of applications across—we are told—200 departments and agencies will make it an incremental process. It will take place by department and agency according to what the Treasury will allow. It will also be included in the annual capital expenditures of those departments. As the noble Baroness, Lady Noakes, said, the depreciation of IT would normally take place over a period of less than 10 years, and the capital investment programme has been greatly increased in recent years. So money is available as the technological upgrades go through.
	So we should not say, as the noble Lord, Lord Bhattacharyya, implied, that noble Lords on the Opposition Benches should dismiss the proposals because they are utterly unaffordable. It will be incremental, because this is not only about the delivery of more efficient public services everywhere at once. The principal points that have been made were about the establishment of a firm identity—

Lord Phillips of Sudbury: It is not my case—and I do not think that it is anybody's—that this proposal is "utterly unaffordable". The question is what we are setting about affording The difference between the estimates from the Government, at roughly £6 billion, and the LSE group at £19 billion to £24 billion or £25 billion is the sort of difference that one must do better with, before one legislates, as I think the noble Lord would agree.

Lord Macdonald of Tradeston: Surely, year by year that will be the business of the departments of the Treasury and, ultimately, of Parliament. It seems quite wrong of noble Lords to say—over a period of 10 years, over hundreds of departments and agencies and over a multiplicity of possible uses—"Give us an exact figure". That is not sensible.

Lord Hylton: I invite the Minister to state what kind of costs are going to be recovered from the public—that is, from the passport holder or the future ID card holder. Will they only be Home Office costs, or will they be costs across the whole range of Government? Will they be capital costs or annual recurrent costs? We need to know these things.

Lord Carter of Coles: The amendment proposed by the noble Baroness, Lady Noakes, has a keen attraction for those interested in accurate forecasting and accountability. After all, that is what we are talking about. The idea of identifying the costs incurred by the identity cards scheme from April 2004 and for 10 years going forward would be very useful if we could define the boundaries. What is proposed in the amendment is a great broadening of the boundaries, whereas what the Government are bringing forward in their costings is related to the activities of only one department. So to try to get costings across the whole of government is very ambitious and counter-productive.
	With regard to the importance of what we are engaged on, this country has a slow record of streamlining the information held by government about their citizens and getting it into more usable and useful forms. We are really not up to speed with the practices in our existing and emerging competitors, and that is something that we need to attend to. We have a very complex scheme of databases which are administered in different ways to meet different needs. We have, at the turn of the century, 80 million national insurance numbers, 60 million NHS number, 30 million taxpayer numbers, 30 million people on local authority databases, 45 million people on the electoral register, and so on. In contrast, the Nordic countries seem to have done things better; they have one number and one system that tracks people all the way through, and it is not surprising that they have some pretty low costs. That is something that we need to move towards; we are in the modern age. We cannot simply stand there and say, "Gosh, we do not know how this is all going to work". As the noble Lord, Lord Dholakia, said, people are finding the answers to those things, and we should be confident that we can find those answers technologically and managerially. The introduction of the Bill will provide things that have been discussed many times—the whole question of security protecting citizens, and so on. But we must not lose sight of the fact that the big win for us will ultimately be to make things more efficient.
	We have talked a lot about money. The scheme proposed by the Government has had its costs proposed by the Home Office. I should declare an interest as for a number of years I have been a director of the Home Office general board. I have not seen those costs, but they have been examined by KPMG and the Office of Government Commerce, as the noble Lord, Lord Macdonald, said. Steps have been put in place to prevent the sort of mistakes being made that were made before. We also have the steely oversight of the Treasury, which is not notorious—especially at this time—for flinging money around needlessly. In terms of holding the Government to account, we have a number of £584 million for what is going to happen within the Home Office.
	As for other government departments, I believe that we should leave that matter alone. In this amendment, we are being asked to approve something that broadens the boundaries, but a number of factors are involved. Huge technological change has taken place, and the costs of storage and processing are dropping very rapidly. We have been talking about looking forward 10 years, but if we look back 10 years we can see what has happened in terms of technology and the emergence of specific solutions—with eBay, easyJet and Tesco's home shopping, for example. Those are individual solutions for individual needs with a broad theme.
	The idea that we should produce some broad masterplan across government for using the identifier in all government departments seems rather statist, old-fashioned and totally impractical. We need to let each government department assess what it needs to do, come forward with a business case and be accountable for delivering it and getting the investment to do so, as well as getting the return on the investment and making it work. That is how we will get accountability. The accountability for the Home Office proposals has been made very clear by the Minister. We know that it is £584 million. We are all aware of the dangers of big IT; whether it is in the private or public sector, it is difficult—and I speak with some experience in that regard. You have to approach it like eating an elephant, in bite-sized pieces, taking one bit and eating it and then going on to the next. That is what we should do with this scheme.
	I am all for holding the Government accountable for the forecast, but they have made that forecast. I am sure that they will stand by it, and that is something that we shall all track. But to introduce this amendment would slow down the introduction of this very important legislation and the implementation of it. State security and civil liberties are important, but the amendment would hold us up in gaining the great benefits of the technological revolution that are to hand.

Baroness Scotland of Asthal: I shall adopt the modus operandi advocated by my noble friend Lord Barnett and say: I agree with my noble friends Lord Bhattacharyya, Lord Macdonald and Lord Carter of Coles. I prefer the arguments that they propose. I therefore disagree with the noble Lords, Lord Phillips and Lord Crickhowell, and the noble Baroness, Lady Noakes. That is how we would do it in judicial committee. I could then sit down. I thought that would get a great deal of approval from my noble friend Lord Barnett, which is of course my only aim in life.
	I was intrigued by the exposition of the noble Baroness, Lady Noakes, not least because of her professed scepticism about commercial confidentiality, bearing in mind the role she very recently held at KPMG. I am sure she is familiar with the thrust and the importance of those issues. I listened with some care to her acceptance, and I agree with her that her arguments were somewhat lopsided when it came to benefits. She concentrated on one issue. I understand entirely that she speaks for the Opposition on this, and one has to cast one's arguments as one can, but I respectfully say to her that such an imbalance means that we are left in a situation where issues expounded on behalf of the Government are the more sound.
	I want to explain why. In my letter I went through many of those issues, although not all noble Lords may have had the benefit of seeing that letter, so, for the purposes of this argument, I should just outline the main thrusts contained therein. For the record, I make the following clear: the current best estimate of the annual average running costs of issuing identity cards and passports to British citizens is £584 million per annum for the start of the identity card scheme. As I have said previously, on current plans, that is expected to be at the end of 2008, bearing in mind the comments of my noble friends Lord Carter and Lord Bhattacharyya about the developments that will come very rapidly during that period. This cost will absorb all the existing costs of issuing passports through the current United Kingdom passport service, together with the developments that will be needed over the next few years in order to introduce biometric passports.
	Around 70 per cent of the annual figure of £584 million we have estimated for the issue of biometric passports and identity cards would need to be spent in any event, if we were simply to move towards the issuing of biometric passports incorporating facial image and fingerprint biometrics. We would have to spend that money anyway.
	To give a sense of the costs of other existing government agencies, the estimate of the United Kingdom Passport Service's annual revenue and expenditure published in its corporate and business plans is £293 million in 2005–06 and £397 million in 2006–07. As a wider comparison, the total operating expenditure of the Driver and Vehicle Licence Agency for 2004–05 was £470 million. I quote these figures to reassure your Lordships that our published estimates are in the right order.
	Noble Lords ask how we can be certain that the estimates are produced on a sound basis. That is the thrust of the question that has been asked. As with any major government project, the identity cards programme is subject to regular review. That was made absolutely clear in the comments made by my noble friend Lord Macdonald, who has had intimate knowledge of how rigorous those processes are—and, indeed, how effective. The review teams have had full access to the business case for the identity cards programme. An independent assurance panel has been established to provide a further lane of oversight and offer additional assurance that the programme can deliver the effective implementation of the identity card scheme. We should also not forget the level of scrutiny that has been, and will continue to be, given to this project by our colleagues in HM Treasury, as the noble Lord, Lord Barnett, well remembers from his day.
	The estimates have to be approved by Parliament by being voted through the supply estimates process, either in the main or in supplementary estimates. It is worth reminding ourselves that this is a matter for the other place. It is the elected House that has the democratic responsibility for approving estimates of government expenditure. In order to provide even further reassurance, we commissioned the accountants KPMG to carry out an independent review of the cost methodology and cost assumptions in the outline business case. I will not repeat what my noble friend Lord Macdonald said, but the noble Baroness will remember well that KPMG is sound in terms of the advice it gives and rigorous in the approaches it takes. The report recognised the high quality that has already been alluded to, and the 15-page extract from the report has been published containing all KPMG's recommendations. As noble Lords know, this has been placed in the Library.
	Some have suggested we should be spending the money earmarked for identity cards on something else. That was the point made by the noble Lord, Lord Phillips of Sudbury: more on police, for instance, or on immigration officers. Again, there is an easy answer to that suggestion. We intend that most of the costs of issuing passports and identity cards should be recovered from the fees charged for passports and identity cards. If we were to stop the planned introduction of identity cards, there would be no fees, and so no spare pot of money to spend on another pet project; and I come back to the fact that we will have to spend £397 million anyway on these new passports.
	Several noble Lords asked why we are not able to provide more details on costings. The reason is simple: it is not because of a desire for unnecessary secrecy, but to protect the taxpayer and the public, who will benefit from the identity card scheme. The noble Lord, Lord Crickhowell, asked about the Supreme Court. The issues that arise from which building to buy for the Supreme Court are different from the issues we now have to deal with, for this reason: the provision of secure facilities and managed IT data centres is a highly competitive market. It is precisely for this reason that we would not want to let the market know how much we are prepared to pay for this service, because we have found in the past that people tend to pitch their bids at how much they think you are able to spend.
	Therefore, I am afraid it would be quite wrong of us to publish detailed costings now. If, for example, I were to say how much of the £584 million annual running costs is expected to be spent on running the national identity register, or the estimated cost of printing plastic ID cards, companies specialising in this sort of work would tailor their bids, to the estimates we suggest, as I have just indicated. In plain terms, there would be no chance of finding a cheaper option as no one would dream of bidding lower than our forecast costs, even if that could be done.
	The same argument for commercial confidentiality applies to other estimates: for example, why we cannot publish in advance what we estimate the setup costs to be, or why it would not be appropriate to publish what other departments might expect to spend if they introduced identity card readers. We are working with key departments now to ensure that any amendment to their existing systems, or plans for new ones, is planned well in advance to ensure the benefits of the identity card scheme are realised.
	I should say to the noble Baroness, Lady Noakes, that the £584 million estimate of annual running costs includes the annual capital costs, in accordance with the Government's resource accounting procedures, and includes the depreciation of capital costs too. Neither costs of capital nor depreciation costs are themselves capital costs, but they are consequential to incurring capital costs. I am sure the noble Baroness is very familiar with that, although others may be less so.
	I have dealt with the budget approval process for the ID card scheme. Perhaps it is worth reminding noble Lords that my right honourable friend the Chief Secretary, who, many in the Chamber will recall, was formerly the Minister responsible for ID cards, keeps a close eye on these developments, and will continue to do so.
	The other issue that was raised was the lack of transparency on costs. We have published the operating cost estimate of £584 million. It was suggested we have not made clear, over a 10 to 15 year period of running the scheme, what the operating costs will be. But we say that is a clear indication of the scale of the costs. We think that we have struck the right balance between indicating the scale of the total cost, including what the costs will be to the individual—we have made that clear, to answer the point made by the noble Lord, Lord Hylton, in relation to the ID card itself being estimated to cost £30—and the need to secure value in a highly competitive market.
	A number of noble Lords, not least the noble Lord, Lord Phillips, asked about the difference between the LSE's consultation and ours. With the greatest respect to the LSE consultation, we say that it contains flaws in relation to the way in which the figures were put together. One understands the basis upon which that has been done but the LSE consultation exercise papers did not anywhere state the suppliers it had consulted, but it stated that commercial confidentiality was not necessary. Interestingly, I note that the expert panel of suppliers did not endorse the final LSE findings. Indeed, the high level of participation by suppliers within the Intellect market sounding process, which is designed to protect the confidentiality of both parties in the procurement process, seems to indicate an acknowledgment by suppliers of the need for confidentiality in the process. As many Members of the Committee will know, Intellect is a trade association of IT and communications technology which runs market sounding seminars connected with the ID card scheme.
	We have received a recent letter in relation to the LSE's findings from Professor Angel of the LSE, which replies to another letter. That will be published. I hope the Committee will appreciate that there are a number of reasons why we disagree with those findings and prefer our own.

Baroness Scotland of Asthal: We say that our figures are sound. They are sound because they are based on actual costs. We have predicated them on the costs that we have now. We know how much it costs us to run the Passport Agency. We know the costs of the system that we intend to establish. Given the bracket of the £397 million—being how much we currently spend—we have extrapolated how much it would cost to add the extra 30 per cent. As I have said quite clearly, 70 per cent of this money is going to have to be spent already. I am happy to put in the Library a detailed exposition of the difference between our costings and the others. I referred to the letter written by Professor Angel of the LSE. We have now replied. There seems to be a basic error. We were surprised to discover, for example, that in the body of the report undertaken by the LSE there was no reference to one of the major reports on biometrics and the way in which that was dealt with in the United States. It is unusual for such a gap not to have been addressed. That is surprising, but the correspondence may elucidate some of the differences between us.

Lord Phillips of Sudbury: I am again grateful to the noble Baroness for giving way. I think that the report was published in May 2004. The LSE group was aware of it and consider that it is not germane to this matter. I think that I am representing the group correctly. It is certainly not something it has overlooked.

Baroness Scotland of Asthal: One of the curious things is that the LSE report did not provide any background information on how the figures were calculated. Indeed, the LSE has acknowledged that some of them were wrong and that some of the assumptions were guesses. That is surprising given that it is a major study. Professor Angel indicated that the matter was taken into account. I, of course, accept that in its entirety. However, the fact that it was taken into account was not reflected in the report, which is unusual and surprising. Those issues remain.
	How will other government departments react? The costs will be incurred only to generate a net benefit to a particular department, for example, increased efficiency, better customer service or reduced fraud. It would not be right to regard these future costs as part of the planned cost of issuing identity cards, any more than the cost of providing passport readers at ports should be seen as part of the cost of issuing passports. Decisions on the passport readers are a matter for the Immigration Service, looking at its own business case justification for spending the money set against the benefits that speedier passage of passengers would achieve. Exactly the same cost-benefit judgment will need to be made in relation to ID card readers.
	The legislation before us today is enabling legislation to allow a system of identity cards to be introduced. The Bill will not be the final word and the Government will need to be reassured at every stage that the scheme has sound financial viability. Of course, expenditure on the ID card programme is subject to the normal audit procedures of departmental expenditure exercised through the National Audit Office. I entirely accept that we should be discussing costs as part of the process of passing the Bill. However, we must also recognise that, constitutionally, estimates to be agreed by Parliament for the development and running of the ID card scheme remains a matter for the elected House and not your Lordships' House. We feel that the figures we have to date are sound and have been interrogated with propriety. As my noble friend indicated, the Government are sure that we will implement this measure only if we are confident that these figures are going to be within the realms of what is reasonable. We believe that they are.

Baroness Scotland of Asthal: Before the House resumes, I invite noble Lords to make a note in their diaries. We complete the Committee stage of this Bill. Noble Lords will remember that we had an initial demonstration of biometrics in this House on 14 November, which I attended. A further demonstration will be held in Committee Room 3 on the Committee Corridor starting at 10am on Thursday, 12 January 2006. I hope that noble Lords will take advantage of that opportunity if they wish to see how the biometric information is undertaken.

Baroness Amos: My Lords, I would like to repeat a Statement made in another place by my right honourable friend the Prime Minister.
	"With permission, Mr Speaker, I should like to make a Statement about the European Council in Brussels on 15–16 December.
	"The main issue at this European Council was the EU budget for 2007–13, the first budget ever for the enlarged Europe of 25 member states, soon to become 27 with the accession of Bulgaria and Romania.
	"This country can be proud of the part we played in the enlargement of the EU. The countries of central and eastern Europe that for so long suffered under communist dictatorship are now free democracies and vibrant new members of the European Union. I say that to have championed the cause of these new states, to have welcomed them into NATO and Europe and then to have refused to agree a budget that protects their future economic development, would have been a betrayal of everything Britain has rightly stood for in the past 15 years or more since the fall of the Berlin Wall. They are our allies. It is our duty to stand by them, but it is also massively in our national interest.
	"These new member states have fast-growing, open economies; new ideas; human capital; and a political vision of Europe that is close to ours. However, though they are catching up economically they are still much poorer than most of the original EU 15; their people are half as wealthy as in the rest of Europe. The purpose of the budget is rightly to transfer resources from the wealthier west of Europe to the poorer east of Europe. Over the coming years, within a broadly stable budget, funds for the new member states will increase from €24 billion to €174 billion, a seven-fold increase.
	"In time, of course, this makes them prosperous, and us too. Look at the example of Ireland and Spain. Bilateral trade with these countries, in goods alone, is now more than €60 billion a year. Investment in the future prosperity and stability of eastern Europe brings big and lasting benefits to this country.
	"The reason it was so important to reach agreement at this European Council is as follows: as all central and eastern European leaders made clear to me, it was essential to have a December deal to allow these countries to plan and prepare for using the EU funds when those funds start in 12 months' time. It was clear that the prospects for a deal next year were negligible, and if there were to be no deal in 2007 the European Parliament would take over the budget process. This would mean the Parliament setting annual budgets on the existing financial arrangements, which would have meant that countries like Poland would have lost around two thirds of their EU funds.
	"That is why they wanted a deal now. Of course, there is also a need for fundamental reform of the EU budget. As I said in June, what we need is to settle the budget on the basis of everyone paying their fair share of the costs of enlargement now; and then to open up the prospect of a radically reformed budget midway through the next budget period.
	"The agreement reached on Saturday morning differed from that of the Luxembourg proposal in four key respects. The overall budget is smaller. The proposal in June was that the UK rebate should be reduced in commitment terms by around €22.5 billion; under this deal the maximum we shall pay is €10.5 billion. In the review clause in June, the CAP agreement of 2002 was specifically endorsed. Now it is clear that all aspects of the budget can be examined in 2008–09.
	"However, crucially for Britain this agreement states expressly, unlike that of June, that the British rebate remains in full on all expenditure in the existing 15 member states. It remains in full on all CAP market expenditure everywhere in the Union, including in the new member states. We have, however, agreed to disapply a proportion of the rebate on structural and cohesion spending in the new member states, in effect on spending directly designed for economic development. As I have said, the cost of this is up to a maximum of €10.5 billion, or about £7 billion over the seven years of the financing period. Moreover, because the rebate stays on all CAP and all spending in the EU 15, the rebate will rise not fall, to an average of €5.8 billion in payments terms annually from 2007. Overall, the rebate will get us around €41 billion back in the next budget period, substantially more than in this period. That is then the crucial leverage for future reform.
	"As the strongest supporter of enlargement, among all member states, I strongly believe that it was right, indeed essential, that the UK should contribute properly to enlargement. The fact is that that if we support and indeed drive through a policy of ending the post-war division of Europe, we have to be ready to accept our fair share of the costs of that policy. Enlargement was never and could never be a cost free policy—and this Government are prepared to shoulder their responsibilities in this area, because it is the right thing to do.
	"In this context I want to dispel one misunderstanding that has arisen: namely, the impression that only the UK is contributing to the costs of enlargement. All wealthier countries are contributing. In terms of net contributions, our contribution will increase by 63 per cent over the next financing period in comparison with 2000–06. France's contribution will increase by 124 per cent. Italy's contribution will increase by 126 per cent. Spain will lose in the region of €40 billion. Moreover, after some 20 years of paying, under the original rebate, twice as much as France, UK and French contributions will from 2007, for the first time, be in rough parity; and because the UK economy is now bigger than the French economy, we will in fact, on the Commission's figures, be contributing a smaller share of our national wealth.
	"Alongside this agreement on support for the modernisation of eastern Europe, we also agreed on a fundamental review of all aspects of the EU budget, including the CAP, to be led by President Barroso, with the recommendations in 2008. As the language in the European Council conclusions makes absolutely clear, it is then possible for changes to be made to this budget structure in the course of this financing period. This will also allow us to take account of any changes agreed in the WTO round, including the decision to phase out all export subsidies for agriculture by 2013. In addition, it was agreed that any CAP spending for Romania and Bulgaria, about €8 billion, should be fitted within existing CAP ceilings, a significant budgetary discipline.
	"So to summarise—when people ask what did we get for agreeing to pay our fair share of enlargement, the answer is: an agreement that sees us for the first time since we joined the EU paying no more than similar countries like France and Italy; the rebate staying put on all CAP spending and rising not falling in value; and a process that can in the years to come lead to the necessary fundamental reform of both rebate and CAP that we would all want to see.
	"I should report briefly that the Council also agreed on a strategic partnership between the EU and Africa, on a new and strengthened policy on illegal migration, and on a counter-terrorism plan. We also agreed that Macedonia should be granted candidate status, the next step in its path towards membership of the European Union. As a strong supporter of Macedonia's ambitions, I want to congratulate the Macedonian Government for the progress that they have made towards this goal. The European Council also unreservedly condemned the President of Iran's recent remarks about Israel and warmly welcomed the 15 December elections in Iraq as a further step towards democracy and stability in that country.
	"Over the past six months, the UK presidency has delivered the historic launch of accession negotiations with Turkey and Croatia, a long-standing British objective. We have delivered a number of important pieces of legislation, including the REACH regulation on chemicals and the data retention directive, an important measure against terrorism. We have delivered reform of the EU sugar regime and a strengthening of the EU position on climate change. And we delivered an EU budget deal which is €160 billion cheaper than the original Commission proposals, provides for a huge transfer of spending from the original 15 to the new member states of eastern Europe, and which preserves the British rebate in full on the CAP and all spending in the EU 15. I commend all of this to the House".
	My Lords, that concludes the Statement.

Lord Strathclyde: My Lords, I thank the Leader of the House, for repeating this important Statement. I regret that we did not have such a Statement after the Hampton Court summit, convened by the UK presidency, and I hope that both Houses of Parliament will in future be able to comment on interim heads of government summits before final decisions such as these are made.
	Christmas approaches. I understand that the Prime Minister regards his weekend's work as a triumph and it would be unseasonable to upset him. But will the noble Baroness, when she sees him next, very delicately and sensitively tell him that very few pubs will be staying open late to toast this so-called success? Some 200 years after Trafalgar we have Brussels—a day when champagne flowed in Paris on the saving of the CAP and a German paper jeered that the "tiger" of Europe had turned into a "doormat".
	The Prime Minister says that the UK rebate will rise in years ahead. Well, yes, strictly speaking that is true, but the problem is that without his intervention it would have risen far more. Can the noble Baroness confirm that had the Prime Minister never gone to Brussels, the UK rebate would have risen by £7 billion more than it now will and that this is a massive new burden on British taxpayers to pay French farmers? Why, if this £7 billion hit on our national budget was planned, did it not feature in the Chancellor's pre-budget Statement?
	What did the Prime Minister mean in another place when he said that the rebate would not be negotiated away, "period"? Was he telling Parliament one thing, when he planned to do another, or had he forgotten to add that by "period", he meant a period of just six months? The only defensible circumstances in which the United Kingdom could waive its veto on the rebate were ones in which the French Government waived their veto on reform of the CAP. The Prime Minister told that to the CBI less than a month ago. So why, when the Prime Minister waived, did President Chirac sit on his hands?
	Will the noble Baroness confirm that CAP spending will be higher next year and in every year up to 2013? Will she confirm that France's foreign minister has said, "Jacques Chirac has secured there won't be reform to the CAP before 2014"? Will she confirm that France has now briefed that it will veto any change to the CAP in 2008–09 and confirm that Prime Minister Ahern has said Ireland will tolerate no change in farm spending for the coming decade? I think that the noble Baroness will be able to confirm those statements.
	What kind of victory is this? The UK gives up a fifth of its rebate and, despite what the Statement says, will remain a bigger net contributor than France, while France blocks any CAP change. In Brussels, the Prime Minister argues in vain for CAP reform, while in Hong Kong his Cabinet colleague resists CAP reform at the WTO. To be on the different side in two arguments over world-wide free trade and EU protectionism, and to lose where it matters most, is a humiliating weekend for Britain.
	We want to see Europe succeed, but it cannot succeed—

Lord Strathclyde: Noble Lords should be patient; they will enjoy this.
	We want to see Europe succeed, but it cannot do so unless we dismantle protectionist barriers against poor countries and make the excesses of the CAP history. I just said that, but the Chancellor of the Exchequer said it first and I agree with him. How bitter he must be that the CAP is secure until 2013 while a £7.2 billion black hole has been blasted in his Budget plans. This was the British people's money. Now it is to be given away. Perhaps the noble Baroness can say how it will be paid for—by increasing tax, cuts in public spending, borrowing, or what?
	The Statement said that Spain will pay more, but can the noble Baroness confirm that under this deal Spain will remain a net beneficiary from the EU until at least 2013? And why did the UK propose extra funding for the Spanish enclaves of Ceuta and Melilla when Spain continues to harass Gibraltar?
	The Prime Minister made much of enlargement, and he is right to do so. We on this side have always been a passionate supporter of EU enlargement. We want to see Turkey in. We welcome the decision to open discussions with Macedonia, and we accept some extra resource for enlargement. But that has to be done fairly—not just by surrendering a fifth of our rebate at a cost to UK taxpayers but also by reducing the bloated and unjustifiable farm subsidies that will remain.
	The countries of Eastern Europe are our natural allies if ever real EU reform is to come. Not so long ago, President Chirac was lecturing them to keep silent and to do what France and Germany told them. What a dismal day, then, for UK diplomacy to negotiate in such a ham-fisted way that the Foreign Minister of Poland was driven to sign with France in the Financial Times a joint denunciation of Britain's attitude to Eastern Europe.
	I have to ask the noble Baroness yet again why in this summit under the UK presidency no action was agreed against the Government of Robert Mugabe? Was there any censure of his recent visit to Rome or of the violence and sham of Zimbabwe's rigged elections? I support the forthright condemnation of the deplorable comments by the President of Iran calling for the eradication of Israel. But have not EU leaders been too complacent for far too long about Iran and its nuclear ambitions? The summit condemned use of the death penalty in Iraq. Can the noble Baroness say whether the Prime Minister will intervene to prevent the execution of Saddam Hussein if he is convicted of genocide?
	Taken all in all, the UK presidency has been a bitter delusion. This dismal summit showed yet again the disjunction between the Prime Minister's bold words and feeble achievements: the desperate need for urgent CAP reform remains unmet; the cry of the third world for the opening of EU markets unheard; the call from Europe's unemployed and struggling businesses for a bonfire of regulations and directives unheeded; the crisis of fraud in the EU budget untackled; and the confident claims of moving Europe in a new direction has proved to be so much empty spin. The UK presidency has come and gone—leaving nothing behind.

Baroness Amos: My Lords, I begin by thanking both noble Lords. I say to the noble Lord, Lord Strathclyde—I always enjoy listening to him—that I find it extraordinary for him to try to lecture me or this Government on the success of our presidency and on the success of the summit and, at the same time, to say that he wants to see Europe succeed when, as the noble Lord, Lord Maclennan, stated, the first action of his leader was to withdraw the Conservative Party from the EPP. I find it extraordinary to think about how the noble Lord and his party might wish to exercise influence within Europe, given that they would have to sit with the group of independent MEPs. I quote a Conservative MEP:
	"These are the MEPs whom no other group will tolerate, and include people like Jean-Marie Le Pen, Alessandra Mussolini and Robert Kilroy-Silk".
	I have some difficulty in understanding how the noble Lord would expect his party to serve Britain's interests in Europe through that mechanism. On that point, I entirely agree with the noble Lord, Lord McLennan.
	The noble Lord, Lord Strathclyde, asked me a number of other questions about the nature of the rebate. Perhaps I can help the noble Lord by reminding him that the rebate was designed to correct an unfairness in 1984. He may recall that the noble and learned Lord, Lord Howe, and the noble Lord, Lord Lawson, have both described the rebate as an anomaly on an anomaly. It was not intended to create a new unfairness in 2005. That is precisely why we were prepared to pay our share of enlargement. We championed enlargement. Indeed, as the noble Lord may recall, successive Conservative governments also championed enlargement. But we have to pay for it. We recognise our responsibilities and that is why we think that this is a good deal. It moves resources from the richer countries to the poorer countries in the European Union. However, if the noble Lord looks at his figures, he might see that, taking the European Union average GDP as 100, the UK is above it at something like 120. A country such as Latvia is below that average, at 40. That unfairness needs to be addressed, and that is why we had a very clear objective in the negotiations to move resources from the richer to the poorer countries.
	It must be remembered that we also won an agreement for a wide-ranging review of the EU budget, with the possibility of changes being implemented within the current financial perspective. That is entirely consistent with what my right honourable friend the Prime Minister said when reporting in another place on discussions at the European Union Council in June. He said:
	"I proposed that we have a fundamental review of the EU budget, reporting in time for us to be able—midway through the next financial period—to alter fundamentally the structure of the budget, dealing both with the rebate and the CAP".—[Official Report, Commons, 20/6/05; col. 524.]
	As for the size of the rebate, in the period 2000 to 2006 it was €5.3 billion. In the period 2007 to 2013, it will be €5.8 billion, even with the money that we are giving to support the enlargement process.
	I say to the noble Lord, Lord Strathclyde, that Britain did not support the common agricultural policy at the World Trade Organisation talks. We have argued time and again for the importance of reform of the CAP in the context of WTO discussions. I also remind the noble Lord that there was agreement at the summit on a wide range of issues including conflict resolution with respect to the relationships between the European Union and Africa.
	I endorse the point made by the noble Lord, Lord Maclennan. The redistribution is welcome. Countries in need will see their budgets go up from €24 billion to €174 billion, a sevenfold increase. Of course we all hope that the discussions in the European Parliament on these issues will be constructive.

Lord Radice: My Lords, to those who argue that we have given up our rebate without getting anything in return—and we have heard quite a lot of that over the past few days—is the answer not that it is only right that the United Kingdom should pay its fair share of enlargement, a goal supported by all parties in Parliament? Is it not the case that we will retain the UK rebate, as my noble friend said, and do so in relation to the CAP and the expenditure of the existing 15 countries, and that it will continue to rise throughout the period? Is it also not right that, for the first time, France and the UK will be broadly making the same net contribution to the budget? Finally, let us not forget that, in contrast to the Luxembourg package, we shall be able to raise the issue and argue the case for reform of the CAP and for a modern budget system in 2008, rather than in 2013–14?

Lord Hannay of Chiswick: My Lords, could the Leader of the House confirm that the European Union contributed £5.4 billion to the new member states between 1990 and 1999; €21 billion to them in the current 1999 to 2006 financial perspective; and that the UK contributed its full financial share to all of that money paid before 1 May 2004 and received no rebate on it? Would she not agree, therefore, that it is perfectly reasonable to treat that spending now as outside the rebate system, and that it was so accepted by the Opposition when they were in office?
	Does the Minister also agree that, with the benefit of foresight, it was a mistake for the British EU presidency to cut so much from the allocations of the new member states in its first compromise proposal only to have to reinstate almost all of it in the last one? What was gained by that mistaken manoeuvre?

Baroness Amos: My Lords, the noble Lord, Lord Hannay, is entirely fair in his questions. With respect to the contributions to the accession countries between 1990 and now, the noble Lord is right that they have been honoured by successive governments and they have been outside the rebate system.
	As regards the noble Lord's second question on the process of negotiation, he knows as well as I do that in negotiating a deal between 25 member states, with Britain not only holding the rebate but also the presidency, the negotiating process had to be handled extremely sensitively. We put proposals on the table, there was then a series of lengthy discussions with our colleagues and we reached a compromise. That is what negotiations are about.

Baroness Amos: My Lords, the noble Baroness may recall that I was quoting the noble and learned Lord, Lord Howe of Aberavon, and the noble Lord, Lord Lawson.

Lord Clinton-Davis: My Lords, does my noble friend agree that this House has rarely heard a more ill-informed attack on a European Summit than has occurred today? While the common agricultural policy must be reformed, which is highly desirable, does she also agree that it was not possible to reform it at this meeting? Does she further agree that the Opposition have totally ignored the plight of the countries of eastern Europe which are new to the EU? They had to be given some hope of contributing resolutely to the success of the EU and that without that it would not be possible to agree. Does she not agree that the Prime Minister has given them some hope?

Lord McKenzie of Luton: My Lords, allow me to welcome today's opportunity for a debate on the information that we provide to the European Commission. This falls to the Government as part of our duties under Section 5 of the European Communities (Amendment) Act. As noble Lords know, we report key information on our main economic policy measures to the Commission on an annual basis. Naturally, that includes pertinent data on non-inflationary economic growth, as well as the wider context concerning employment levels, social protection and growing living standards for UK citizens.
	Let me set out the background of this debate. As my right honourable friend the Chancellor set out in another place, our duty is to confront the wider global economic challenges that all nations are facing, and it is our concern to take critical decisions that will secure Britain's long-term economic future. Noble Lords will appreciate that this means combining British enterprise with ongoing investment in skills and science, as well as in our infrastructure, including housing. I want to stress that we must match that investment with genuine reforms that we hope will propel this country to a long-term lead in some of the most wealth-generating and dynamic sectors globally. Of course, that means ranging from science and modern manufacturing, through our finance and capital markets, into the education sphere and throughout our creative industries. Underpinning that focus is our continued fiscal discipline, where the Government continue to match public investment with widespread reform in welfare and our public services. By doing this, we seek to bring together a strong economy with real opportunity and security for our hard-working families and for our citizens in general.
	Section 5 of the European Communities (Amendment) Act 1993—the Maastricht Act, as it is popularly known—requires Parliament to approve the information sent by the Government to the Commission for this purpose. We set out such economic information in the Pre-Budget Report earlier this month, and that material forms much of the basis of what will be sent to the Commission. It is our duty to do what we can to support better planning and government thinking. So, by formally sharing information from the Pre-Budget Report with our European partners, we can also help to ensure an accurate data system in the EU.
	But to understand fully our economic position, we must also step back and consider the past year. There has been a virtual doubling of global oil and commodity prices. All countries have faced global inflationary pressures, yet the British economy has also had to deal with domestic inflationary pressures. Noble Lords will appreciate the comments of my right honourable friend the Chancellor who recently stated in the other place that the strength of a monetary and fiscal regime is how it performs, not just in the good years but also in the tougher years. So we must judge this year against that.
	This year is the toughest and most challenging for the economy in some years. Yet, as a result of the strong macroeconomic framework that we have developed, Britain now has high rates of employment, seeing some 6,000 new jobs every week. Our employment rate is now 74.9 per cent, with 28.8 million people in work, which is a rise of 2.3 million people since 1997. We are also on course to meet our inflation target of 2 per cent, not just for this year, but over the next two years. That is in spite of the wider domestic and international pressures. Likewise, house prices, which at one point were rising at 15 per year each year for three years and under the previous administration peaked at 25 per cent, have moderated to 3 per cent.
	Inflation this year is around 2 per cent and interest rates peaked below 5 per cent. We have also seen growth of 1.75 per cent, despite the wider economic context and without the recessions of past eras. To symbolise this, I remind noble Lords that, under this Labour Government, we are now in a 34th quarter of continued growth with low inflation, the first government of any party to achieve eight years of uninterrupted growth since 1805, and all in all, we have now had 53 consecutive periods of growth.
	Let me take a moment to summarise the message of the Pre-Budget Report. The Chancellor announced that we were meeting our fiscal rules and that we are meeting the golden rule in this economic cycle with more than £16 billion to spare. He made clear that, alongside record investment in our schools and colleges, in our hospitals and in our housing, debt this year is forecast to be just over 36 per cent of national income, compared with 44 per cent in 1996–97.
	That is well below the 40 per cent ceiling of the sustainable investment rule, and will mean from now to 2010—a five-year period—Britain will see more investment than came through in the 18 years from 1979 to 1997. For the period of the current spending round, 2004–05 to 07–-08, public sector net investment will rise by an annual rate of 15 per cent. Underpinning all that is our key objective to build a strong economy and a fair society with real opportunity and security for all.
	The Pre-Budget Report also sets out further reforms to support our response to the demands of globalisation, including plans to increase the supply and improve the affordability of housing, to strengthen the planning system, and to reduce further the regulatory burden on business.
	We set out our intention to create a world-class environment for scientific research and development, helping to improve the skills of the nation. But we must also meet the productivity challenge by focusing on certain key areas. This means continuing to improve competition, promote enterprise, supporting science and innovation, raising UK skills and encouraging investment. The Pre-Budget Report sets out our next steps to achieve this.
	We will take forward the goals of the 10-year science and innovation investment framework, with measures to create a world-class environment for health research. We will have doubled the science budgets since 1997, which will reach £3.4 billion by 2007–08. Alongside that, we will set out our strategy for tackling the long-term lack of supply and responsiveness of housing and launch a review, led by Kate Barker, to consider how planning in England can better deliver sustainable economic development that is delivered in a timely and transparent manner.
	We will seek to make progress on the Hampton review recommendations to reduce the costs on business of administering regulations. We will also introduce measures to reduce costs on business by removing unnecessary regulatory burdens, including those originating in Europe. We have announced an independent review to ensure the UK's intellectual property framework is appropriate for the digital age. We have published the interim report of the noble Lord, Lord Leitch, on the review of skills and will provide additional support for higher education exports, which will sustain the UK's world-leading position and attract more highly skilled overseas students.
	But a flexible and high productivity economy is underpinned by high quality public services too. This Government seek to deliver world-class public services through sustained investment and continuous reform. We are on course to meet the target set out in the 2004 spending review, which also included efficiency targets for all departments. As part of the figures we published with the Pre-Budget Report the Chancellor recently confirmed that the first £4.7 billion of savings, identified by the Gershon review, have been achieved this year. There has been on-target reductions and relocations of posts across the Civil Service. Ahead of schedule, £5.7 billion of assets have been sold. In the coming year, we will conduct a zero-based asset review.
	Let me quickly restate how we will achieve success. By combining our enterprise with investment in skills and science, infrastructure and housing, at every point matching investment with reform, Britain can lead in the world's most wealth generating and dynamic sectors, in science and modern manufacturing, in finance and capital markets and in education and the creative industries. With fiscal discipline, matching investment and reform, we can combine a strong economy with opportunity for all. That is the programme set out in the 2005 Pre-Budget Report, and that is the basis on which we will send updated information to the European Commission.
	Noble Lords will, I am sure, seek to discharge our duties under the Maastricht Act, to report on our main economic policy measures, and maintain our position, developed by this government, at the heart of the EU policy process. But I welcome your thoughts on this. I beg to move.
	Moved, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2005 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.—(Lord McKenzie of Luton.)

Lord Marlesford: My Lords, my noble friend Lord MacGregor rightly paid tribute to the Chancellor for the way in which he ran the economy in the early days of his reign. One of the things the Chancellor was particularly good at was getting his forecasts right when often the commentators thought he had them wrong. Therefore it is particularly disturbing to note that between March 2005 and December 2005, he actually finds that he has to announce that the rate of growth for this year that he expected in March has been halved to 1.75 per cent. I was interested to note that the Chancellor said "1.75 per cent". In another place he used the words, "one and three-quarters per cent", which sounds better than 1.7. The independent forecasters are talking about 1.7 per cent. That is a huge change over such a short period that one must worry about the forecasts for the following years. That is a reasonable position to take, however much one may give the Chancellor credit for getting it right in the past. To get it so massively wrong in such a short time is worrying.
	I recognise that things in the world economy can, do and have changed very rapidly indeed. The British economy is vulnerable to a number of outside pressures. International factors such as the sustainability of the American economy have an effect. Much of the world depends on the American consumer and the American economy maintaining its remarkable momentum and the recovery it has made post the dotcom collapse and 9/11. I turn to the risk of protectionism, and I am afraid that the Hong Kong/WTO deal does not in any way reduce that risk. There are also the potential traumas from terrorism, which could have a huge impact on the price of oil. As all noble Lords know, an increase in the price of oil is the straightforward equivalent of a tax increase. It is thoroughly deflationary, but at the same time it can be inflationary on prices.
	I want to focus my remarks primarily on the domestic situation. My noble friend Lord Northbrook has quoted Anatole Kaletsky. I should declare an interest as a director of GaveKal, an outfit based in Hong Kong. The "Kal" part is Anatole Kaletsky. He and I work quite closely together and I agree with him on many things.
	He rightly said, as my noble friend quoted, that the Chancellor has decided to make major cuts in the growth rate of public spending, but, frankly, I am not sure whether he will be able to do so.
	In 2000 he let out a whole tribe of spending imps and I wonder whether he can put them back again. The Pre-Budget Report suggests a public sector net debt—the old PSBR as used to be—of £452 billion. That is a great deal of money by any standards. But the attempts to get spending down through greater efficiency have not really worked very well, as one of my noble friends has said. The Gershon cuts have been outweighed by the increases in the number of public servants. I think the figure is 90,000 in compared to a target of 85,000 out—and the 90,000 is actual.
	Many of these jobs have come about through additional regulation. Contrary to what the noble Lord, Lord Haskel, said, much of the regulation has become a job creation programme. It means the Government digging the holes in the ground while the rest of us have to fill them up.
	Part of this increased regulation comes from Europe. In spite of the good intentions of the new Barroso Commission, it is clear that the Commission at the official level—I shall be interested to hear whether the noble Lord, Lord Tomlinson, who was with me on these occasions, has taken the same lesson—is largely out of control. As the German vice-president of the Commission, Günter Verheugen, put it to Members of your Lordships' Select Committee, officials in the Commission seem to see their role as keeping the chauffage of the Commission going. This could largely negate the attempts of the excellent Swedish vice-president, Margot Wallström, to persuade member countries of the EU that the Commission has turned over a new leaf. Anyone who looks at the EU Commission programme for 2006—which I have done, and I am sure the noble Lord, Lord Tomlinson, has also done—will see that it is full of nonsense. One hopes that it will never get beyond even the Commission—I wish it did not spend its time doing this—and certainly one hopes that it will not get through the Council of Ministers. But that is what is happening.
	Not only have the Government failed to reduce the flow of regulation from Europe, more seriously—and more culpably, probably—they have failed to prevent the British Civil Service from gold-plating what emerges. I will give three quick examples. First, as regards the cross-compliance rules for the new CAP regime, Defra has had what I can only call the impertinence to tell farmers, by the most detailed rules, exactly when and where they should go on their land to prevent damage to soil structure from water logging. Handling the land is a basic skill of farm husbandry; it is what farming is all about. The farmers in Suffolk, where I come from—and I am one of them—have heard rumours that inspectors are to be hired and appointed who have been recruited from redundant shelf-stackers in Tesco. The idea of that sort of thing is beyond belief. Even at the height of Soviet collectivisation, I doubt whether the Kremlin actually told farm managers how many yards into a field they could drive their tractors when it was raining. That is one example.
	As to the second example, the Government have just announced that they are to reduce the threshold from €3,000 to €1,000 of something called the droit de suite. This is a system of a 4 per cent tax on works of art of living artists every time they change hands in the market. It is a pretty nonsense scheme anyway. It was invented by the French—I am told they wish they had not invented it, probably rather like their 35-hour week—and 25 per cent of the proceeds of this go to a bureaucracy invented for the purpose called the Designers and Artists Copyright Society. To reduce the threshold will add tens of thousands of cases to be administered and monitored. I have no interest in this area at all—I am just fascinated—but I have talked to some of the people who are going to have to try to run it and they are horrified.
	Let me give an example in the area of the third money-laundering directive from Europe, which the Government have just endorsed. To try to identify terrorists or serious criminals by monitoring money laundering is clearly sensible—although, frankly, to be effective, it is probably best that it is intelligence-led. But the silly thing about this directive and its two predecessors is that it brigades with terrorism and serious crime, tax evasion—something of a quite different order of magnitude as a threat to the world's security which should be dealt with by other means. The real absurdity is that the directives place huge penalties on anyone in the whole of a widely-defined financial sector—which includes the accountancy and legal professions and so on—who fails to report a suspicion, however small, to an organisation called the National Criminal Investigation Service. Not surprisingly, over 90 per cent of the reports are, after investigation, found to be trivial or irrelevant. These directives are an example of the huge burden on a large part of business.
	My noble friend Lord MacGregor referred to the PFIs. These are intended to keep spending off the balance sheet. In a sense, that is a good idea but, as anyone who knows about companies will know, it can also be extremely dangerous. The latest published figure that I have seen—perhaps the Minister will be able to give us a more recent one—is that a year ago PFI deals totalled some £43 billion. That would have put the public sector debt up from 35.4 per cent of GDP—comfortably below the Chancellor's ceiling of 40 per cent—much closer to 39 per cent. There are other examples of off-balance sheet debts. Obviously Network Rail is one.
	I should like to say a word about pensions. If ever there was a big issue that this Government have failed to face it is the coming pensions crisis. Of course it is a political hot potato but they have simply run away from the public sector unions. Both public and private sector pension prospects are in crisis. The simple question is: who is to pay—the Government, companies, taxpayers, individuals? The actuarial calculation of a balanced economy in the UK at present, with the demographic changes that have already taken place, suggests that the retirement age should be 72. Yet in the public sector, every employee is guaranteed an inflation-proofed pension at an absurdly early age. Introducing inflation-proofing into the public sector was a huge mistake made, I am afraid, by the Heath government.
	In the private sector, the problem of shortfall arises from three factors: Mr Brown's assault on the surpluses of pension funds; the decline in interest rates; and the reduction in the investment returns of pension contributions. It is a huge problem, and one which the Government show no sign of being prepared to face.
	Finally, monetary policy is a powerful weapon, but one which should be used for contra-cyclical purposes and not to stimulate an economy where there is a need for structural reform. Like all weapons, it needs ammunition, which means scope to adjust interest rates up or down. That is why in our relatively neutral situation, where we do not quite know what we will have to do—it is the same in America—interest rates are roughly at what one could call a normal rate which should mean a real return of at least 3 per cent. Thus the Bank of England, with 4.5 per cent, and the Federal Reserve, with 4 per cent, are comfortably placed.
	I am a little more worried about the European Central Bank. On this I do not agree with Anatole Koletsky that the ECB rate should be lower—2.25 per cent does not give a lot of scope for adjustment. However, I pay tribute to the ECB for refusing to use monetary policy as an excuse for Germany and France not to restructure. They have always seen monetary policy as providing liquidity for cyclical reasons. In that, they are quite right. An example of misusing this is Japan, which has had zero interest rates for a decade and is only now beginning to recover.

Lord Tomlinson: My Lords, my noble friend Lady Royall should not be too harsh. All the noble Lord, Lord Marlesford, was doing was showing the difficulty of forecasting—he got that one somewhere over 30 per cent wrong, which made everybody else's record in this debate look pretty good. I did not realise, however, that my shadow loomed quite so large over the noble Lord. I cannot share his recollection of the meetings with Commissioner Verheugen or Commissioner Margo Wallström, the main reason being that on that occasion I was unable to join him in the visit to Brussels. So I was not there.
	I thank my noble friend Lord McKenzie for giving us the opportunity of this brief debate. The past eight and a half years have been years of great economic progress in many areas. Inflation is firmly under control and set to remain stable and low. It does not enter into the political discussion as a factor. Interest rates are low and stable, and near to the lowest level for a generation. Again, it is unquestioned. Employment is at a record high. Our level of unemployment is the second lowest among the G7 countries, today standing at 4.7 per cent. Public finances, despite what has been said, remain sound. Borrowing in 2005–06 is forecast at £37 billion and UK debt is lower than debt in the United States, Japan, Italy, France and Germany. Cyclically adjusted, net borrowing is at 2.2 per cent of GDP and will fall over each of the following five years to a point where it is 1.4 per cent of GDP.
	We have the longest continued quarter on quarter growth. Sharing in the injunction of my noble friend Lord Haskel to enjoy Christmas, I shall show the spirit of Christmas by saying that that process began under the previous Conservative Administration. But for every quarter in the past eight and a half years, it has continued under this Government. Against that background, I do not feel in a frame of mind to take lessons in sound economic management from noble Lords opposite.
	I listened with great interest to the noble Lord, Lord Northbrook, as he nitpicked his way through variations on forecasts. All I can say to him is that I wish investment fund managers had had as consistently good a record over the past eight and a half years as my right honourable friend the Chancellor of the Exchequer. He was at least brave enough to admit that his profession—though not necessarily he—had probably done more than any other to destroy the capital savings of many people in this country during that period, a period in which their investments collapsed.
	During the 18 years of the Conservative government, the Bank of England had no independence. We had the two worst post-war recessions. Inflation exceeded 10 per cent per annum. Interest rates hit 15 per cent. We suffered despite the dynamic leadership of that great trio, the noble Baroness, Lady Thatcher, and her cohorts, the noble Lords, Lord Lamont and Lord Lawson. Despite the collective efforts of such a trio, we suffered a humiliating exit from the exchange rate mechanism. Unemployment broke through the three million barrier; 1.5 million people suffered negative equity; and in the three years from 1990 to 1993, some 250,000 people had their homes repossessed. In many respects, the United Kingdom is today fully equipped by the Government's economic and policy reforms to continue to prosper in a rapidly changing global economy.
	I welcome en passant a relatively minor, but important, part of the report. I refer the Minister to paragraph 3.101, on boosting higher education exports. I hope that, by the time he comes to reply to this debate, he will be in a position to look at those bullet points in box 3.9 and assure us that the promise to,
	"allow all international students on completion of post-graduate degree, or an undergraduate degree in a shortage sector, to work in the UK for up to 12 months, benefiting up to 50,000 people",
	and the promises after two subsequent bullet points will be put into effect pretty quickly and not be the subject of great inter-departmental deliberation for years to come.
	However, despite all the praise that can be rightly heaped on the Government for their economic performance and their economic prospects, I prefer to spend the remaining four minutes of my speech on four areas of ongoing concern. First, as I have said on previous such occasions, while our record on productivity may be better than it was a couple of years ago, it is still poor and lags behind the productivity record and performance of economies such as those of the United States and France. It would be a brave and probably foolish man who would bet on our being able to match productivity performance in some of the new economies. We still have not found the solution to the question of productivity. I merely highlight it as one of the potential weaknesses in our economy in the future.
	Secondly, although I welcome the interim report of my noble friend Lord Leitch, we still have a serious skills shortage. This has been a continuous factor of life for as long as I have been engaged in political activity. When I was in the House of Commons during the early 1970s, the agenda whenever we met the CBI was the mismatch between skills available and the demands of industry. The agenda remains the same today, as it has been at so many of the intervening points. Sooner or later—I believe that it must be sooner—we must mobilise our further education system and other parts of the higher education system to correct the mismatch between skills in supply and skills in demand. We have consistently failed to do that over three or four decades.
	I turn to my third area of concern. I may be old-fashioned, but I do not like current expenditure being described as investment. I understand how paying for staff wages, paying for staff pensions and paying for staff training can be described as investment in the human capital of an enterprise, but when I look at investment, I am much more concerned by the additions to the gross domestic fixed capital formation and prefer that to be regarded as investment. In that respect, we still have a worryingly poor record.
	The fourth of my concerns is in relation to science and technology. There are areas of education and investment that are too largely neglected. I do not propose to say a great deal on that subject, because I was very comforted when I saw on the speakers' list the name of my noble friend Lord Bhattacharyya, and I know that he is going to express himself fully in that area—but I sound my concern to the Minister.
	In conclusion, clearly much has been done. There is a record of which the Government can and should be rightly proud—and I share in their pride. However, there is still much to do, and I have suggested to the Minister four areas in which care and attention must be given in the years ahead.

Lord Haskel: Before the noble Lord sits down, perhaps I may respond to something he said. I was not referring to the steps needed for our own depressed economy; I was referring to the investment needed to cope with the dangers from the international economy. That was the point I was trying to make.

Lord Hamilton of Epsom: I am glad that the noble Lord has intervened in that way. If he is saying that investment should be in the form of an enormously increased public sector, I do not agree. The investment should come from lowering taxes and increasing consumer demand so that the private sector reacts. We want a healthy private sector in this country, not a bloated public sector where, as I said, the productivity growth is nil if not going backwards. It is much too large relative to the size of the overall economy. Lower taxes do much more to stimulate an economy and create investment than throwing money at the public sector.

Lord Bhattacharyya: My Lords, I too thank the noble Lord, Lord McKenzie, for opening this timely and important debate. Much of it has centred on the Chancellor's highly predictable reduction in the growth forecast in the Pre-Budget Report. The sense of the debate has been quite miserable in the sense that it has all been gloom and doom. The fact is that we have had eight and a half years of sustained growth and the lowest unemployment record. By and large, productivity declined when the Conservatives were in power—that is, after the reduction in taxes. There is no guarantee whatever that if one reduces taxes, productivity will go up.
	The measurement of productivity is fraught at the best of times. Our profitability in this country is quite good and has remained good. Looking at the productivity of the public sector, do noble Lords really mean to say that the Chancellor should not have invested in that sector? When we came to power, it was in the pits. You had to go to hospital to die. There was nothing. Schools were in a miserable state, and universities and the whole education system were underfunded. So the fact that the Chancellor has invested in the public sector should be applauded and not even questioned. When the Conservatives were in power, taxes went down. Did productivity go up? No, it did not. Therefore there is no direct relationship between taxes and productivity in that sense.
	What is important in the public sector is the reform process. First, investment was needed. Investment does not produce an increase in productivity straight away. Staff have to be trained and recruited and buildings have to be built, and it takes at least eight to 10 years before one can see the results of that investment in terms of productivity. It has just about started to happen. Of course, in the early days of investment there is sometimes a perception that the resources are being misused because citizens do not see the results of the investment straightaway. But investment in universities, schools and hospitals has given enormous benefits. The fact that people even question whether there should be public sector investment in this country is not the sign of a developed nation. That is what one talks about in underdeveloped countries.
	Much is said about statistics, but statistics are fraught at the best of times. So I shall concentrate on the promotion of research and development and its importance to the economy as set out in the Budget. The Chancellor's ambition is to enhance science and innovation through the public and private sectors working together to make the UK one of the leading countries in the world for turning science into business innovation. That is an ambition which I am sure is shared by everyone in this House.
	There is no doubt that nations that are at the forefront of research and innovation will be best placed to move into the high value-added technology-driven areas which will provide the new sources of economic growth. I go to China and India every month and I see the developments taking place there. The first stage of development was when we moved all our low-cost call centres and so on offshore. The second stage came when we started having our manufacturing sector there. Businesses do not go there just because we are uncompetitive or because we have low productivity. All these nations have to develop themselves and businesses go there for only one reason—the market.
	How do we counteract a growth rate of 7 or 8 per cent in India and 8 or 9 per cent in China? The only way that we can do so is, first, by funding R&D, by ensuring that we can capitalise on that R&D and by ensuring that we have businesses with high value-added technology. Here I echo what my noble friend Lord Tomlinson said about our skill base having to be right so that we can exploit R&D. There is no point in spending a lot of money on R&D in this country unless we are able to exploit it.
	The second part is also very important. The development of R&D in this country is not the only reason why we should have skilled people. We need skilled people so that they are able to exploit R&D anywhere in the world. Every country is developing the sort of products and processes that we should be able to exploit. That requires a very sound skill base in this country, the ability to develop it and to continuously enhance our knowledge base.
	There is no doubt that those at the forefront of research and innovation will be best placed to move into higher added-value technology. In 2004, the Government set out their aspirations for R&D in the science and innovation investment framework, setting an ambitious R&D target for the UK of 2.5 per cent of GDP by 2014, from its current level of 1.9 per cent. Would anybody disagree with that? That is an achievable path, and we should achieve it. It is a tough challenge, but essential if the UK is going to hold its own among its competitors. In 2004, the Chancellor put his money where his mouth is with public spending, with £1 billion in extra funding for the UK science base by 2008. Of course you can reduce taxes, but that does not raise our intellectual base. In the end, we will become an offshore island, for everybody else to come here and launder money.
	The framework also set out a number of measures to promote knowledge transfer into the economy and support for university research. It is those I seek to address today. I am delighted that, to strengthen the partnership between government, business, universities and other R&D stakeholders, the Government are to establish a regular forum between the Chancellor, the Secretary of State for Trade and Industry and the Minister for Science and Innovation with business leaders and scientists. For the first time, we have had different departments getting together to solve this problem. I am sure that Sir Tom McKillop of AstraZeneca will make an admirable chair of this group.
	The group has the goal of improving the UK's R&D and innovation performance; not the base, but the performance—that is, productivity. As part of the process, the Government will establish an updated assessment of UK business R&D and innovation in the 2006 Budget, including an analysis across sectors and a comparison of global trends. Productivity in science and technology is difficult to measure. It is fraught. When you analyse it, as the ILO and many other centres have tried to do, it is very difficult. Where do you start? Where do you end? For the first time, we are saying, "Let us have a proper analysis of our productivity in science and technology and see how it compares with others".
	Incidentally, from my personal experience of visiting firms and universities around the world, I do not believe that the UK's R&D performance is as lamentable as many commentators make out. Huge numbers of people come to this country just for our R&D. In terms of attracting students, our productivity in the higher education sector is so high because we do good R&D—hence they come here to study. At the same time, I agree with the noble Lord, Lord Tomlinson, that we have to make it easier for them to come and work, because they come with a proper skill base.
	Where research ends and development starts and where research leads to innovation are very difficult to judge, so some good quality data would be most welcome. The fuzziness can be seen in the way the Government have reacted to the recommendations of Sir George Cox's review of creativity in business, accepting some of them but wishing to reconsider others.
	The vehicle that the Treasury has put in place to encourage greater R&D in the private sector is, of course, the R&D tax credit. Take-up of the R&D tax credit has gone up, with 95 per cent of eligible SMEs making a claim in 2002–03. The credit has already provided over £600 million in support for R&D in SMEs since its inception. That is no mean figure. How much of it is totally new R&D and how much is done just because of tax credits is very difficult to judge, but I think the new committee will look at that.
	Another important thing is that the Government have set up the regional development agencies.
	Importantly, the Government have also set up regional development agencies. During the past few years, the Advantage West Midlands agency, of whose board I used to be a member, has helped many small and medium-sized companies out of its total science and innovation budget of only £15 million. The figures are very impressive. Of the technology-based companies, Accelerate Technology Transfer, which helps companies acquire specialist technology, has assisted 75 companies per year. Innovation Actions, which looks at funding potentially high-risk projects that would normally fall short of standard funding criteria, has helped 83 companies. Innovation Networks gives companies the opportunity to pool expertise, experience and capital in a bid to develop ideas, products and services, with 117 companies assisted over its lifetime. Mercia Spinner, which specialises in the commercialisation of ideas from higher education, has assisted 168 companies so far. Advantage West Midlands, the regional development agency, with small sums of money has been able to change the mindset, environment and framework of the way in which the Midlands works. It has taken some time, but in the history of how we commercialise R&D, this is fabulous. So the Chancellor must be congratulated on what he is doing in science and technology.

Lord McKenzie of Luton: My Lords, I start by thanking all noble Lords who have participated in the debate. It has been wide-ranging and by and large has been conducted in accordance with the season we are in. I am grateful for that. In the time available I shall try to answer as many of the questions put and points raised as possible.
	It is good news to hear from the noble Lord, Lord MacGregor, that British Sugar is about to start its investment to undertake production. I do not know if British Sugar is eligible for the new and enhanced capital allowances, but I hope that it is. The noble Lord also asked about the position of orchestras and national insurance contributions. I understand that discussions have taken place between the Association of British Orchestras, the Musicians' Union and the DCMS on the issue. It has arisen because back in 1998, at the request of the Musicians' Union, entertainers asked to be subject to national insurance as employees so that they could access the relevant benefits, although for tax purposes they were self-employed. Notwithstanding that, it seems that some orchestras have not been paying the insurance contributions. Obviously we are keen to preserve and enhance the tremendous work done by orchestras up and down the country. Further discussions will be necessary, but I understand that it is not something that was somehow retrospectively visited on orchestras. Perhaps we can go into this in more detail outside the debate.
	The issue of SIPPs was raised by a number of noble Lords. The problem with simplification is that people will seek to push against and cross any line drawn in the tax system. It is undoubtedly the case that the simplification which was intended right across the piece, a move that is still broadly accepted and supported, was in danger of giving rise to unintended consequences. It was said both in this House and, I believe, in the other place when questions were asked, that the Government would keep the position under review. The Government have concluded that unintended consequences would arise; those have now been prevented. I am pleased that the move has received support this evening.
	I shall not spend too much going over the debate on the £5 billion on pension funds, tax credits and ACT. However, just to remind noble Lords, the Pensions Policy Institute calculated the figure to be a good deal less than £5 billion. One of the major problems faced by pension funds has arisen from a 1986 amendment, the 5 per cent surplus rule. That encouraged pension funds either to increase benefits or to take contribution holidays. That was done with perhaps a lack of appreciation of what the long-term investment returns would be and, indeed, what was happening demographically. People are living longer.
	A number of noble Lords asked about the fiscal rules and pointed out that the goalposts have been changed. I want to stress that what has changed are the data. If there were objective revisions to the data for the early years that led to a different conclusion, it was absolutely right to factor those in to the decision taken. Similarly, if growth is now lower than was expected, it follows that it will take longer to get back to trend growth than the end of the cycle. Noble Lords cannot have it both ways. What would have happened if the data change had led to a different conclusion, one that when implemented would have made it more difficult for the Government? I am not sure that noble Lords would be asking us to ignore the data.
	A number of noble Lords touched on the tax ratio. For 2005–06, tax and national insurance as a percentage of GDP is below that of the seven years of the previous Conservative government, and even looking at the end of the current projection it is below the peak years of the previous Conservative Government. The latest OECD data that we have for tax and national insurance as a percentage of GDP shows the UK to be below the EU 15, below OECD for Europe and OECD as a whole. We now have corporation tax rates, income tax rates and an effective capital gains tax rate which are lower significantly than we inherited from the previous government.
	My noble friend Lord Haskel commented on forecasting and the difficulties it entailed. I should point out—I think my noble friend acknowledged this—that the average absolute error on year-ahead autumn forecasts by this Government is 0.66 per cent; by the previous government it was 1.01 per cent; and all governments since, I think, 1974, it was 0.85 per cent. Since 1997 the Treasury has outperformed the independent consensus in both current year and year ahead GDP growth forecasts.
	As to why the forecasts change, as is set out in the Pre-Budget Report, 0.5 per cent of the change is purely arithmetic because the ONS data revisions which took place in June of this year did changed not the overall growth level for 2004 but the profile of it. So the latter part of that year was at a lower level, and that impacts directly on whatever the growth projectory of the current year would have been. My noble friend Lord Haskel is correct to mention the OECD and its favourable comment on the monetary and fiscal framework that we have in this country.
	He also touched upon the issue of public sector employees, both in terms of definition and what they do. Throughout the debate there has been a feeling that noble Lords opposite believe that somehow private employment was good and public employment was bad. That is demonstrably not the case.
	The noble Lord, Lord Northbrook, raised a number of points. He referred to a message from the Politburo. I am not sure whether or not that will help my street credibility but, on the forecasts, again the 0.5 per cent arithmetic adjustment related to 2004 and oil prices impacted on both demand at home and on demand in those countries to which we export—particularly those countries with which we have strong trading relationship. There was also a slower growth in earnings, which impacted a little bit and demonstrated the flexibility there is in the labour market.
	Reference was made to the increase in personal and consumer debt. I heard the Governor of the Bank of England refer to this when he was giving evidence to the Treasury Select Committee. I believe he said that at the macroeconomic level it was not a concern. Obviously at an individual household level and in individual personal circumstances it can be, but its impact on the macro-economy was not, in his view, significant.
	Is borrowing out of control? No, it is not. The golden rule has been met. In relation to borrowing, if you look at the chart in the report you will see that it is now below 40 per cent of public sector net debt. In 1979–80 it was 43.9 per cent, then 46 per cent, 46 per cent, 45 per cent, 45 per cent, 45 per cent. For many years under a Conservative administration, debt levels were significantly above what they are now.
	In relation to the changes to small business—the noble Baroness, Lady Noakes, raised this point—the lowest starting rate is lower, certainly, than the rate we inherited. Again the problem is that when the Government try to put an incentive in place there are unintended consequences of people seeking to abuse the system. There is no doubt that, rather than use the opportunity to reinvest in small companies, people were using it to incorporate just to get tax and national insurance benefits.
	Reference was made to the planning gain supplement. I do not have time to go into it in great detail but it is intended to be at a modest level. In part it would substitute for the Section 106 agreements that happen at the moment. But if you want some justification for it, it would all be ploughed back into infrastructure, particularly by local authorities. The figures show that agricultural land value is just under £10,000 a hectare. In England, planning permission for residential purposes would increase the value of a hectare of land to something like £2.6 million, a huge increase. It is not unreasonable that a modest amount of that is used appropriately to provide the infrastructure, which will help the development come forward.
	The noble Lord, Lord Marlesford, referred to the forecasting error. I point again to the impact of the June ONS data revisions for 2004. He talked about the impact of the US economy. Obviously, a pick-up in growth in Europe would be welcome because, as the economy moves forward, consumer spending is projected to increase at a lower rate than the growth of the economy as a whole. Investment and exports will grow more strongly to help that growth go forward.
	On public expenditure, a major spending review planned for 2007 will look fundamentally at all the issues that face us over the next 10 years and will be based on zero-based budgeting. That is a sensible and practical way to make sure we are getting value for money.
	On PFI deals and the economy, I think it is right that what does and does not go on the balance sheet is determined not by government but independently. At the moment, some of the on-balance-sheet stuff does not feature in the net debt figures. There have been problems in getting the data; it is a question of analysing what that effectively means. There is a report to the Select Committee on the Treasury, which I believe is hoping to come forward with some data in March of next year. If I am wrong, I will write to noble Lords.
	The noble Lord, Lord Marlesford, referred to public sector pensions. There is agreement that for new entrants, 65 will be the pension age. The proposals deliver the £13 billion in savings that the Treasury was looking for. Obviously there will be sector-by-sector discussions on how that will be implemented and how current members relate to it. On the pension fund issue and its impact on private sectors, I have already referred to the 1986 changes and what that led to.
	On regulatory reform, there is a good deal going on in this respect, all of which is set out in the Pre-Budget Report. The Government have taken a risk-based approach to the implementation of the EU accounts modernisation directive. We have abolished the uprate in the financial review. A package of administrative simplifications in the tax system worth £300 million per annum to business is included. Following last year's review of the Financial Services and Markets Act 2000, and a 10-point action plan of reforms to wholesale and retail financial markets, reflecting the greatest concerns that business has raised, the Government have asked Neil Davidson, the former Solicitor-General for Scotland, who worked with the Better Regulation Commission, to audit the stock of existing legislation to identify areas that might be gold-plated. To suggest that the Government are not doing anything or that somehow this cannot be changed, I do not believe is right.
	My noble friend Lord Tomlinson quite rightly praised the great economic progress that has been made under this Government and the importance of economic stability. He reminded us what economic failure was about—two recessions, an unemployment rate of 3 million and record levels of repossessions. My noble friend talked about productivity; he is right that there are challenges, which are addressed in the Pre-Budget Report. We should put this in context, which my noble friend recognised. We have more than closed the gap on Germany since 1997 in output per worker. We have increased the favourable gap with Japan at marginal improvements against the USA, and have halved the gap with France. So progress is being made.
	The historical comparison of manufacturing productivity shows that between 1997 and 2004, it averaged 4.1 per cent; between 1980 and 1996, it averaged 3.5 per cent.
	My noble friend asked whether current expenditure is being classified as investment. The answer is no. Public sector net investment is defined, as it always has been, as relating to gross fixed capital formation and it does not include current expenditure. More public sector net investment is taking place. It is three times higher as a share of the economy than it was in 1997–98, and investment is at its highest level for 26 years. My noble friend referred to our being a leading educational exporter. I confirm that the Government see that as being a key commitment which they have to take forward.
	The noble Lord, Lord Patten, referred to what had happened in Europe. If we are assessing the costs involved in that, as was touched on in the Statement, we should also be assessing the benefits, short and long term, which come from enlargement in particular. He asked me whether the Chancellor agreed what happened in advance. Noble Lords will understand that the Chancellor does not check with me on everything that he does, but I am sure that he has been in touch throughout this process. The noble Lord also asked when the figures would be updated. The public finances forecast will be updated as usual at the Budget. That will reflect the deal that was reached at the weekend. The forecast is based on cautious assumptions. The Government maintain a reserve and an AME margin.
	The noble Lord said that governments do not build anything. I do not agree with that. Governments alone do not, but one of the key features of this Government's handling of the economy is that we have put in place a framework which has created stability and has had direct impacts on levels of interest rates and investment. It has created a backdrop for industry. My noble friend Lord Bhattacharyya asked about research and development and spoke about the importance of partnerships. To suggest that governments do nothing other than collect tax revenues and waste the money is not a fair representation.
	The noble Lord touched on the issue of the moral basis for public expenditure. That is an interesting point. Throughout the report one finds references to fairness, life chances and where funding is applied. A moral basis is implicit, but it could be made more explicit. That is a good point.
	The noble Lord talked about the excellent Tory legacy, as did others, but one wonders what would have happened if the same oil shock as took place this year had happened under the previous Conservative government, particularly with a simultaneous slowdown in house prices. What on earth would have happened under their management?
	I refer noble Lords to periods of economic slow-down. In the early 1980s, base rates were 16 per cent; in the early 1990s, they were 14.9 per cent; currently, they are 4.5 per cent. Unemployment in the early 1980s was 11.9 per cent; in the early 1990s, it was 10.5 per cent; now it is 4.7 per cent. Mortgage interest rates in the early 1980s were 14.3 per cent; in the early 1990s, they were 15.3 per cent; now they are 5.2 per cent.
	The noble Lord, Lord Hamilton, asked why we ever conceived that investments such as property and fine wine should be held in pension schemes. Most pension schemes are able to invest in those assets currently. Some 15 million members of pension schemes can invest in them. The particular concern in this case was self-directed pension schemes, where abuse could have taken place.
	The noble Lord referred to the fact that money has been poured into health and education. Of course, there had been years of underfunding. If one looks at outcomes, 330,000 fewer patients are waiting for treatment. More than 90 per cent of those attending A&E are now being seen within four hours; 99 per cent of people with suspected cancers are now being seen by a specialist within two weeks of an urgent GP referral. There has been an improvement and I think that the public, by the way they vote, recognise that. I think he said that past performance should not be taken as an indication of what may happen in the future. I wonder whether that is the Conservative Party's new economic slogan.
	My noble friend Lord Bhattacharyya referred to the importance of investment and taking a long-term view, and displayed his considerable expertise on the significance of science, the challenges of China and India and the need for us as a country to go up the value-added chain. I agree with all that. He talked about the need for partnership between government, universities and business; that seems absolutely right, and it is something that this Government are committed to.
	The noble Lord, Lord Newby, talked about 1.75 per cent growth not being a national disaster, and that is right. In the current year we are growing faster than Euro-land—Germany, France and Italy. He referred to difficulties with manufacturing, but manufacturing investment rose by 2.9 per cent in 2005, quarter two; annual growth in manufacturing investment has remained positive for five consecutive quarters; manufacture and export volumes rose 9.5 per cent in three months to September; manufacturing profitability was 7 per cent in 2004, up from 6.9 per cent in 2003.
	On determining the cycle, I would say that the methodology of the Treasury has not changed—it was the data. Either you follow the data or you do not, and if you do not, it is then that you cook the books. Why have a cycle at all? Well, if you do not have a cycle and do not seek to distinguish those impacts on the economy that are cyclical, you could make the wrong decisions about investment and tax. I see no basis for the suggestion that somehow the sustainable investment rule was not going to be complied with; we are confident that it will be.
	On the issue of personal tax rates, I know that the Governor of the Bank of England has touched on it, but no policy changes have been made by the previous two governments that impact on that. However, there are things like fiscal drift that impact on those things, and current data have been affected or skewed by financial services at the higher rate of the income scale, which has an impact on the net tax position.
	We were asked whether we would accept NAO recommendations and whether the NAO would audit all aspects of fiscal rules. The Treasury already looks at a wide range of indicators when coming to a conclusion at the end of the economic cycle, including the results of other methods. The NAO audits 12 key assumptions behind fiscal forecasts, audits the Treasury's chain growth assumption and will audit the end of cycle. The golden rule is assessed by looking at average current surplus over the cycle; statistics on current surplus are produced by the independent Office for National Statistics.
	I am already over time, so noble Lords must forgive me if I do not go into the subject of business investment and some of the very positive data in relation to that. The noble Baroness, Lady Noakes, asked whether we would condemn any attempt to cook the books. Indeed, I do; but I say again that if the data have changed, you have to follow where that data lead you. She referred to the issue of fairness and asked whether we could afford to have an economy that was fair; I believe that we can and we are. Since 1997–98, households on average are £950 better off under this Government, while families with children are £1,500 better off and pensioner households are £1,350 a year better off in real terms. The poorest fifth of pensioner households will be £2,050 better off under this Government.
	There was a suggestion that there had been an attack on oil companies, but those companies, with the unexpected sustained increase in oil prices are making returns of something like 40 per cent on capital, and it does not seem unreasonable in those circumstances to have some sharing of that. Research shows that new developments and exploration is impacted on as much by oil prices as by particular tax regimes.
	We dealt with the small companies issue and productivity matters. A specific question was raised about tax credits, and the particular component of raising the disregard from £2,500 to £25,000. I regret that the cost of individual elements of the package cannot be separated from one another, as there are other important interactions between them. That means that there is much less certainty over the costs attributable to individual elements of the package than for the package as a whole. However, based on the analysis over the first two years of the system, something like 600,000 families per year stand to benefit from the increase in the disregard.
	I have dealt already with the question of the EU settlement on the Pre-Budget Report, and I note that noble Lords on the Opposition Benches are not interested in the EU's view on the UK economy. I would just say that it is under legislation of their government that we are making this report. Perhaps I may write to the noble Baroness on the issues of group litigation and tax revenues.
	We have covered a lot of ground tonight. I apologise for running over time, but having taken long-term decisions to achieve a sustained, low-inflation economic stability, we are well-placed to face up to the global challenges of the 21st-century economy. Against this background, I commend this Motion to the House.

House adjourned at five minutes before ten o'clock.
	Monday 19 December 2005